OLIVER VELEZ - Swing, Core, Guerrilla, Options Trading Tactics

Short Term Trend Following Tests (Profit Expectations: 10-25%)

Chart Setup Buy Calls Buy Puts

Entry Test: MACD is above MACD average AND price is trending up

Entry Test: MACD is below MACD average AND price is trending down

• Trend Reversal Test o MACD crossing o Price trend

Exit Test: MACD crossing does not align with price trend

Exit Test: MACD crossing does not align with price trend

AND (conservative) / OR (aggressive) Entry Test: Price, RSI, MACD Divergence and MACD are all trending up (use a 3 day “best fit” line)

Entry Test: Price, RSI, MACD Divergence and MACD are all trending down (use a 3 day “best fit” line)

• Trend Test o Price o RSI o MACD o MACD DIVERGENCE

Exit Test: If any Indicator trend flattens or goes negative (use a 3 day “best fit” line)

Exit Test: If any Indicator trend flattens or goes positive (use a 3 day “best fit” line)

Swing Trading TacticsSwing Trading Tactics

With With

Oliver L. VelezOliver L. Velez

Founder of Pristine.com, and Author of the best selling book, Founder of Pristine.com, and Author of the best selling book, Tools and Tactics for the Master Day TraderTools and Tactics for the Master Day Trader

Copyright 2001, Pristine Capital Holdings, Inc.Copyright 2001, Pristine Capital Holdings, Inc.

Pristine.com PresentsPristine.com Presents

Table of ContentsTable of Contents

IntroductionIntroductionThe 6 Major Time FramesThe 6 Major Time Frames

Understanding CandlesticksUnderstanding CandlesticksThe 4 Trading StylesThe 4 Trading Styles

The FoundationThe Foundation

The 3 Primary TrendsThe 3 Primary Trends

Combining Building BlocksCombining Building Blocks

The Market’s Basic UnitThe Market’s Basic Unit

The Only Way to Win or LoseThe Only Way to Win or Lose

Anatomy of Up & Anatomy of Up & Down TrendsDown Trends

Dissecting the Major Up TrendDissecting the Major Up Trend

Dissecting the Major Down TrendDissecting the Major Down Trend

Pristine’s Master Pristine’s Master Buy & Sell SetBuy & Sell Set--upsupsThe Buy SetThe Buy Set--up & Actionup & Action

The Sell SetThe Sell Set--up & Actionup & Action

Pristine Chart ExamplesPristine Chart Examples

IntroductionIntroduction

Part IPart I

Charting Time FramesCharting Time Frames

There areThere are six major times framessix major times frames available to available to market players, all of which can be grouped intomarket players, all of which can be grouped into

three broader categoriesthree broader categories::

Long term; Long term; Intermediate term; and Intermediate term; and

Short term.Short term.

Used for academic purposes and cyclical analysisUsed for academic purposes and cyclical analysisLong termLong term

Yearly Charts (each bar = 240 trading days)Yearly Charts (each bar = 240 trading days)Used for academic studies and testsUsed for academic studies and tests

Monthly Charts (each bar = 20 trading days)Monthly Charts (each bar = 20 trading days)Used by academics and longUsed by academics and long--term investorsterm investors


Monthly ChartMonthly Chart

Weekly Chart of INTCWeekly Chart of INTC

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Used for swing trading & core tradingIntermediate termIntermediate term

Weekly Charts (each bar = 5 trading days)Weekly Charts (each bar = 5 trading days)Visited occasionally by swing traders and also used by some long-term investors. We encourage our traders to

visit weekly charts once per week

Daily Charts (each bar = 1 full trading day)Daily Charts (each bar = 1 full trading day)This is the domain of the swing trader. It is where the swing trader will spend 90% of his time and get nearly

95% of his entry and exit signals


Weekly ChartWeekly Chart


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Daily ChartDaily Chart

Daily Chart of INTCDaily Chart of INTCd20mad20ma

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Used for Micro-TradingShort termShort term

Hourly Charts (each bar = 60 minutes)Hourly Charts (each bar = 60 minutes)Visited by day traders at times to eliminate noise and to gain

a clearer perspective of the overall trend. A great time frame for 2-day plays

IntraIntra--day (15day (15-- & 5& 5--minute trading bars)minute trading bars)This is where the day trader and the scalper live their entire

lives. Nearly all entry and exit points are derived in these time frames


Hourly ChartHourly Chart

Hourly Chart of INTCHourly Chart of INTC

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55-- & 15& 15--Min ChartsMin Charts

55--Min Chart of INTCMin Chart of INTC 1515--Min Chart of INTCMin Chart of INTC

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Pristine TipPristine TipFor our purposes, there are two types of trading: Wealth Wealth TradingTrading and Income TradingIncome Trading. The wealth trader, while making occasional visits to monthly charts, will use the weekly and daily charts for all of his trading signals. The income trader, while occasionally visiting the daily chart, willuse the 2, 5, and 15-min time frames for most of his trading signals. Note that there is always an effort to combine two or more times frames. The market player who uses more than The market player who uses more than one time frame in his analysis will experience a higher degree one time frame in his analysis will experience a higher degree of trading accuracyof trading accuracy. Remember this, as it is the most important key to understanding why nearly perfect setups in one time frame can and do fail at times.

Combining Time FramesCombining Time Frames

There are four major stylesfour major styles of trading available to market players,

all of which can be grouped intotwo categoriestwo categories:

Wealth Building StyleWealth Building StyleIncome Producing StyleIncome Producing Style

Trading StylesTrading Styles

1. Core Trading (weeks to months).. Core Trading (weeks to months). This wealth-building style of trading attempts to capture major trends in the market and/or underlying stock. Most traders will use this style for longer term accounts such as IRAs, KEOGHs and other less time sensitive accounts. Weekly charts are used for Core Trading.

2. Swing Trading (2 to 10 days).2. Swing Trading (2 to 10 days). This wealth-building style of trading is designed to capture short-term swings in an on-going trend, while side stepping the brief countertrend moves. It attempts to take advantage of a very overlooked niche, one that is too short for large institutions and too long for day traders. Daily charts are used for Swing Trading.

Note: PristinePristine’’s trading philosophy calls for having at least one of the two s trading philosophy calls for having at least one of the two wealthwealth--building trades always at work. Some of the countrybuilding trades always at work. Some of the country’’s top traders s top traders have amassed very large sums of money utilizing one or both of thave amassed very large sums of money utilizing one or both of these hese styles in their trading programs.styles in their trading programs.

Wealth BuildingWealth Building


1. 1. Guerilla Trading (1 to 2 days).Guerilla Trading (1 to 2 days). This income producing style utilizes a sniper’s hit and run approach. It looks to buy a stock on Tuesday, for instance, and sell it on Wednesday. Conversely, it calls for shorting a stock on one day, only to cover it the next day. Daily and Hourly charts are used for Daily and Hourly charts are used for Guerilla Trading.Guerilla Trading.

2. 2. MicroMicro--Trading (seconds to hours).Trading (seconds to hours). This income producing style is what most people refer to as day trading. Some refer to it as scalping, and it serves as the foundation for anyone who wants to make a living from the markets. 55-- and 15and 15--minute charts are used for Microminute charts are used for Micro--trading.trading.

Note:Note: PristinePristine’’s philosophy calls for specializing in both Guerilla and s philosophy calls for specializing in both Guerilla and Micro Trading, and always having one or both of the styles at woMicro Trading, and always having one or both of the styles at work. rk. These are the styles on which most professional traders focus.These are the styles on which most professional traders focus.

Income ProducingIncome Producing


Core Trading ChartCore Trading Chart

Core Trend

Core Trend

= Short= Short

= Cover= Cover

Swing Trading ChartSwing Trading Chart

Sell

Sell

Sell

Buy

Buy

Buy

Buy

Swing Trader buys near the declining 20maSwing Trader buys near the declining 20maAnd sells away from the 20ma.And sells away from the 20ma.

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Swing Trading ToolsSwing Trading Tools

Tools of the Swing TradeTools of the Swing Trade

Charting Tools:Charting Tools: Daily charts displayed in Daily charts displayed in Japanese Candlestick form.Japanese Candlestick form.

Technical Tools:Technical Tools: Color coded volume; 20 & 40 Color coded volume; 20 & 40 period ‘simple’ moving averages,period ‘simple’ moving averages,and a 5 period Commodity and a 5 period Commodity Channel Index (CCIChannel Index (CCI--5).5).

Commodity Channel Index (CCICommodity Channel Index (CCI--5)5)

+100+100

--100100

Pristine CCI(5) Buy SignalPristine CCI(5) Buy Signal

O/BO/B

O/SO/S

+100+100

--100100

Anticipatory CCI(5) Buy SignalAnticipatory CCI(5) Buy Signal

O/BO/B

O/SO/S

+100+100

--100100

Anticipatory CCI(5) Sell SignalAnticipatory CCI(5) Sell Signal

O/BO/B

O/SO/S

+100+100

--100100

Pristine CCI(5) Sell SignalPristine CCI(5) Sell Signal

O/BO/B

O/SO/S

Note:Note: Pristine looks for buy signals in Pristine looks for buy signals in uptrendsuptrends & sell signals in downtrends.& sell signals in downtrends.

Daily Chart w/ Volume & CCI(5)Daily Chart w/ Volume & CCI(5)

Color coded VolumeColor coded Volume CCICCI--55

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CommentaryCommentaryThe main difference between Japanese Candlestick analysis and Western Bar chart analysis is that the Japanese place the highest importance on the relationship betweeJapanese place the highest importance on the relationship between n the the openopen and and closeclose of the same dayof the same day, while the , while the Westerners place the importance on the Westerners place the importance on the close as it relates to the prior periodclose as it relates to the prior period’’s closes close. Note:Note: As long as the underlying stock closes higher than the prior day’s close, Western thought says it’s positive; however, according to the Japanese view, this is not necessarily the case. If on an up day, the stock closes below its open, the Japanese would regard it as negative. ExampleExample: Monday’s close = $39. Tuesday’s open = $40.75. Tuesday’s close = $39.75. The Western view: “Positive action because the stock was up ¾ on the day.” Japanese view: “Negative action because the stock closed sharply below its opening price of $40.75.”

Important: Important: We regard the latter view as more accurate and useful for traderWe regard the latter view as more accurate and useful for traders.s. This is why we exclusively use candlestick bar charts in our trading analysis in all time frames.

Understanding CandlesticksUnderstanding Candlesticks

Pristine Capital Holdings, Inc.

The Battle with CandlesThe Battle with Candles

Determining Who Won The BattleDetermining Who Won The Battle

Bears WinBears WinBulls WinBulls Win

HighHigh

LowLow

CloseClose

OpenOpen

OpenOpen

CloseClose

HighHigh

LowLow

An Important Statistical FactAn Important Statistical Fact

Pristine Tip:Pristine Tip:

Bulls and Bears cannot consistently win more Bulls and Bears cannot consistently win more than 5 battles in a row. Each side typically than 5 battles in a row. Each side typically

surrenders to the other after 3 to 5 battles won. surrenders to the other after 3 to 5 battles won.

If the Bulls or Bears win significantly more than If the Bulls or Bears win significantly more than 5 battles in a row, 5 battles in a row, a catastrophic loss will be the a catastrophic loss will be the

priceprice paid for such an abnormal winning streak. paid for such an abnormal winning streak.

However…However…


3 to 5 Bar Rallies 3 to 5 Bar Rallies –– Think SellThink Sell

Pictures of GreedPictures of Greed

3 Bars Up3 Bars Up 4 Bars Up4 Bars Up 5 Bars Up5 Bars Up

Think “Sell”Think “Sell”

Think “Sell”Think “Sell”Think “Sell”Think “Sell”


3 to 5 Bar Declines 3 to 5 Bar Declines –– Think SellThink Sell

Pictures of PainPictures of Pain

3 Bars Down3 Bars Down 4 Bars Down4 Bars Down 5 Bars Down5 Bars Down

Think “Buy”Think “Buy” Think “Buy”Think “Buy” Think “Buy”Think “Buy”

High & CloseHigh & Close

HighHigh

High & OpenHigh & Open

HighHighHigh

High

Low & CloseLow & Close

LowLow

Low & OpenLow & Open

LowLow

LowLow

Open &Close

Open &Close

OpenOpen

Close

Reversal Bars

Candlestick SummaryCandlestick Summary


Part IIPart II

Building Blocks to Trading MasteryBuilding Blocks to Trading Mastery

IntroductionIntroductionIn this section, we will reveal a few simple keys to understanding how the market works. The following concepts form the The following concepts form the cornerstone of any and every sound trading technique or tacticcornerstone of any and every sound trading technique or tactic. After gaining a clear understanding of these building blocks, the trader will never again find himself confused and not knowing what to do. In fact, once these powerful but simple concepts aremastered and understood, the trader will rarely find himself on the wrong side of the market. And over 65% of all trading losses can over 65% of all trading losses can be attributed to being on the wrong side of the marketbe attributed to being on the wrong side of the market..

The Market’s Basic Unit (Atom) and its 4 StagesThe Market’s Basic Unit (Atom) and its 4 Stages

Building Block OneBuilding Block One

• This is the only movement a stock can make. There is no other motion possible.

• The entire life of a stock is comprised of this cycle repeated time and time again.

• This cycle forms the basis for predicting price movement.

• The Basic Unit helps the trader know the current status as well as what’s next.

• The key to trading successfully is knowing where you are in the cycle.

• There is only one way to play this cycle successfully, and only one way to lose.

Stage 2Stage 2Stage 4Stage 4

Stage 1Stage 1 Stage 1Stage 1

Stage 3Stage 3

Buy Area Sell Area


• In Stage 2, the Pristine Trader focuses on buying.

• In Stage 4, the Pristine Trader focuses on shorting.

• In Stage 1 & 3, the Pristine Trader can focus on both, buying and shorting.

• Stage 1 to Stage 1 can span over decades (macro), or minutes (micro).

• This Cycle is made up of 3 primary trends.



Stage 3Stage 3

Buy Area Sell Area


The Only Way To Win or LoseThe Only Way To Win or Lose

CorrectBuy Area

CorrectBuy Area

CorrectSell Area

CorrectSell Area

Faulty Sell Area

Faulty Sell Area

Faulty Buy Area

Faulty Buy Area

The Only Way To WinThe Only Way To Win The Only Way To LoseThe Only Way To Lose

Traders who win consistently have simply learned to play the stock

cycle this way

Traders who lose are unconsciously playing the stock cycle in this

faulty manner

T H E F U L L C Y C L E

T h e S i m p l e A r t O f T r a d i n g ® P a r t I B y O l i v e r L . V e l e z & G r e g C a p r a

S T A G E O N E

S T A G E T W O

S T A G E T H R E E

S T A G E F O U R

The Full Cycle

Full Macro Cycle (1)Full Macro Cycle (1)

The Full Cycle


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Stage 1Stage 1

Stage 2Stage 2

Stage 3Stage 3

Stage 4Stage 4

Stage 2:Stage 2: MAs are steadily risingMAs are steadily rising

Stage 4:Stage 4: MAs are steadily decliningMAs are steadily declining

The Full Cycle


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Stage 2Stage 2

Stage 3Stage 3

Stage 4Stage 4



The Full Cycle


Stage 1Stage 1

Stage 2Stage 2

Stage 3Stage 3

Stage 4Stage 4

Novice GapNovice Gap

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Important Points About the 4 StagesImportant Points About the 4 Stages

There is only one cycle in existence. Stocks and/or the market can do nothing else but comply with this cycle. No other movement or motion is possibleNo other movement or motion is possible. This is the first major key to predicting stock market movement. Remember it!

This cycle is made up of four (4) distinct stages, which in turnThis cycle is made up of four (4) distinct stages, which in turn are driven by four are driven by four (4) distinct emotions or psychological states. (4) distinct emotions or psychological states. The 4 stages must, and always do, The 4 stages must, and always do, occur in the same sequenceoccur in the same sequence. This is also an important key to price prediction.. This is also an important key to price prediction.

Stage 1Stage 1, the bottoming period, is driven by Uncertainty/AmbivalenceUncertainty/Ambivalence. This is the stage during which traders are unsure and/or indifferent. The interest level is low.

Stage 2Stage 2, the bullish period, is driven by GreedGreed. This is the stage during which traders will make the most money. The mindset that dominates Stage 2 is one that wants to be in the game, at any cost. Most participants will make money during Most participants will make money during Stage 2, except those who come in too late and/or those who stayStage 2, except those who come in too late and/or those who stay too longtoo long.

Stage 3Stage 3,, the topping period, is also driven by Uncertainty/AmbivalenceUncertainty/Ambivalence, just as in Stage 1. During this stage, sentiment begins to change, as a growing a growing number of players begin to doubt the stocknumber of players begin to doubt the stock’’s (markets (market’’s) ability to continue s) ability to continue upwardupward. . Other continue to think there will be no end to the bullishness.

Stage 4Stage 4,, the bearish period, is driven entirely by FearFear, which typically escalates or crescendos into a climax. Most players will lose money during this time. Those who have held on too long begin to exit in an attempt to keep some of their gains. Those who have entered late typically exit late; but they exit all at once, which in turn creates the climactic part of the decline.Once this last batch of traders exits, the worst is overOnce this last batch of traders exits, the worst is over..

Important:Important: There is only one way to lose. If a trader thoroughly There is only one way to lose. If a trader thoroughly understands this one way to lose, he will be more prone to avoidunderstands this one way to lose, he will be more prone to avoid it. it.


Miscellaneous Points About the 4 StagesMiscellaneous Points About the 4 Stages

A stock, or the market, can only be in one of the 4 stages at anA stock, or the market, can only be in one of the 4 stages at any given time.y given time.

Identifying which stage a stock is in is vital to successful traIdentifying which stage a stock is in is vital to successful trading. It helps to ding. It helps to reduce losing trades, and adds a quality to onereduce losing trades, and adds a quality to one’’s decision making that is very s decision making that is very high.high.

The astute trader will make most of his profits during Stage 2 aThe astute trader will make most of his profits during Stage 2 and Stage 4.nd Stage 4.

Keep in mind that each stage calls for a specific trading strateKeep in mind that each stage calls for a specific trading strategygy..

The successful market player has a collection of approaches for The successful market player has a collection of approaches for each stage.each stage.

Important Note:Important Note: The successful trader has tools designed The successful trader has tools designed specifically for specifically for Stage 2Stage 2, Stage 1 & 3, and , Stage 1 & 3, and Stage 4Stage 4


The 4 stages are divided by (or linked by) 4 transitional phasesThe 4 stages are divided by (or linked by) 4 transitional phases. .

Transitional phases tend to be the most difficult periods or poiTransitional phases tend to be the most difficult periods or points to trade. nts to trade. They are whippy, choppy and very volatile.They are whippy, choppy and very volatile.

All a trader needs to do is learn how to handle himself in each All a trader needs to do is learn how to handle himself in each of the 4 of the 4 stages.stages.

The highest degree of market mastery will be obtained when the tThe highest degree of market mastery will be obtained when the trader rader learns how to handle the transitional phases (a, b, c & d), as wlearns how to handle the transitional phases (a, b, c & d), as well as the 4 ell as the 4 stages.stages.

The entire 4The entire 4--stage cycle is made up of 3 primary trends.stage cycle is made up of 3 primary trends.

The 3 Primary Trends in ExistenceThe 3 Primary Trends in Existence

Building Block TwoBuilding Block Two

There are only three things a stock can do:There are only three things a stock can do:

go upgo up, , go downgo down, ,

ororgo sidewaysgo sideways..

Up TrendUp Trend

Defined by a series of Defined by a series of higher highs and higher lowshigher highs and higher lows

The Up trend is better known as Stage 2.The Up trend is better known as Stage 2.

The trader’s focus is to Buy the

dips/declines and the breakouts.

The trader’s focus is The trader’s focus is to to BuyBuy the the

dips/declines and the dips/declines and the breakouts.breakouts.


Down TrendDown Trend

Defined by a series of Defined by a series of lower highs followed by lower lowslower highs followed by lower lowsThe Downtrend is better known as Stage 4.The Downtrend is better known as Stage 4.

The trader’s focus is toSell / short the ralliesand the breakdowns.

The trader’s focus is toThe trader’s focus is toSell / shortSell / short the ralliesthe ralliesand the breakdowns.and the breakdowns.


Sideways TrendSideways Trend

Defined by a series of Defined by a series of ““relativelyrelatively”” equal highs and lows.equal highs and lows.The Sideways Trend is better known as Stage 1 & Stage 3.The Sideways Trend is better known as Stage 1 & Stage 3.

The trader can do both. Buy the dips and/or

Sell the rallies.

The trader can do both. The trader can do both. BuyBuy the dips and/orthe dips and/or

SellSell the rallies.the rallies.


T H E U P T R E N D

A n U p t r e n d i s d e f i n e d a s a s e r i e s o f h i g h e r h i g h s a n d h i g h e r l o w s .

1

2

3

4

D

5

A

B

C

?

Example Uptrend (1)Example Uptrend (1)

U P T R E N D

T h e u p t r e n d i s d e f i n e d b y a s e r i e s o f h i g h e r h i g h s a n d h i g h e r l o w s

S t a g e 2 U p T r e n d

A L T R W e e k l y


aa bbcc

dd

eeff

1122

33

4455

U P T R E N D


N T R S


HighHigh

LowLow

HighHigh

LowLow

HH

LL


U P T R E N D



S V R N 4 Green4 Green

6 Green6 Green

5 Green5 Green

22


U P T R E N D



C R U

Price CorrectionPrice Correction

Time CorrectionTime Correction




U P T R E N D



A M C C 5 - M i n


No 3 bar declines = Exceptional PowerNo 3 bar declines = Exceptional Power

TimeTime

U P T R E N D



I N T U 5 - M i n


In an uptrend, the swing traderIn an uptrend, the swing traderbuysbuys dipsdips and and breakoutsbreakouts

DipDip

BreakoutBreakout

BreakoutBreakout DipDip

DipDip

T H E D O W N T R E N D

T h e D o w n t r e n d i s d e f i n e d a s a s e r i e s o f l o w e r h i g h s a n d l o w e r l o w s .

3

4

5

?

2

1

E

A B

C

D

Example Downtrend (1)Example Downtrend (1)

50%50%

50%50%

D O W N T R E N D

T h e d o w n t r e n d i s d e f i n e d b y a s e r i e s o f l o w e r h i g h s a n d l o w e r l o w s

S t a g e 4 D o w n t r e n d

A D T N D a i l y

2 Green2 Green

2 Green2 Green

2 Green2 Green6 Red6 Red

10 Red10 Red

4 Red4 Red 6 Red6 Red


D O W N T R E N D

T h e d o w n t r e n d i s d e f i n e d

b y a s e r i e s o f l o w e r h i g h s

a n d l o w e r l o w s .


A D T N D a i l y


Deep Drops & Feeble RalliesDeep Drops & Feeble Rallies

D O W N T R E N D





F O N D a i l y

Institutional LiquidationInstitutional Liquidation


S I D E W A Y S T R E N D

T h e S i d e w a y s T r e n d i s d e f i n e d a s a s e r i e s o f r e l a t i v e l y e q u a l h i g h s a n d e q u a l l o w s .

4

1

2

AA

BBCC

11

22

33 11

AA

2233

BB

CC

Sideways Trend (1)Sideways Trend (1)



C S C

R e l a t i v e l y E q u a l L o w s

R e l a t i v e l y E q u a l H i g h s




B G E N


Trouble RevisitedTrouble Revisited

Pleasure RevisitedPleasure Revisited Pleasure RevisitedPleasure Revisited


Combining Building Blocks One and TwoCombining Building Blocks One and Two

There is only one Cycle or There is only one Cycle or movement a stock can movement a stock can make. We call this the make. We call this the Atom.Atom.

This Cycle is made up of This Cycle is made up of 4 stages (1, 2, 3 & 4).4 stages (1, 2, 3 & 4).

These 4 stages are made These 4 stages are made up of 3 primary trends up of 3 primary trends (Up, Down & Sideways).(Up, Down & Sideways).

Each trend should have its Each trend should have its own matching trading own matching trading actions.actions.

Stage 3Sideways Trend

Buy & Sell


Buy & Sell


Buy & Sell


Buy & Sell

Stage 4DowntrendSell Rallies

& B/Ds


& B/Ds

Stage 2UptrendBuy Dips & B/Os



Buy & Sell


Buy & Sell

Part IIIPart III

Anatomy of Up Anatomy of Up &&

Down TrendsDown Trends

The Anatomy of an Up trend The Anatomy of an Up trend –– Stage 2Stage 2

12

34

1

2

3

4

2

Major Bullish Stage 2Major Bullish Stage 2

Minor StagesMinor StagesMinor StagesMinor Stages

Minor Stage 1’sMinor Stage 1’s = Bottoming Tails, COGs, NRBs and Novice Gaps = Bottoming Tails, COGs, NRBs and Novice Gaps


Important PointsImportant Points

Note that the up trend is nothing more than a series of repetitive Stock Cycles (Atoms).

Pristine traders can buy every Pristine traders can buy every dip and breakout in stage 2 up dip and breakout in stage 2 up trendstrends. The question is not “ifif” to buy, but “whenwhen” to buy the dip (breakout).

While the up trend signifies that the stock is in a ““MajorMajor”” Stage 2Stage 2, note that the up trend itself has minor stage 1s, 2s, 3s & 4s.

Pristine Trading Tip:Pristine Trading Tip:

Pristine traders buy when theMinor 2Minor 2 matches the Major 2Major 2.Herein lies the master key to stock market accuracy on the buy side. The question of “whenwhen” to buy is now answered. A buy is triggered each time there is a stage to stage “MATCHMATCH.” DonDon’’t Miss This t Miss This Concept. It Is PricelessConcept. It Is Priceless!!

2

3

4

1

2

3

4

2

Bullish Stage 2

1

BuyBuy

BuyBuy


The buy setup develops as follows:The buy setup develops as follows:

1

3

4

2

2

3

1) Major Stage 2 with a minor Stage 3 (Wait!)

4


2

4) Major Stage 2 with a minor Stage 2 (STRIKE!)

1

3) Major Stage 2 with a minor Stage 1 (Get Ready!)

Entire uptrend is Major Stage 2Entire uptrend is Major Stage 2

The Anatomy of a Downtrend The Anatomy of a Downtrend –– Stage 4Stage 4

4

3

4

1

2

3

4

1

2

Major Bearish Stage 4Major Bearish Stage 4

Minor StagesMinor Stages


Minor Stage 3’sMinor Stage 3’s = Topping Tails, COGs, NRBs and Novice Gaps = Topping Tails, COGs, NRBs and Novice Gaps



Note that the downtrend is nothing more than a series of repetitive Stock Cycles (Atoms).

Pristine traders can sell short Pristine traders can sell short every rally and breakdown in every rally and breakdown in stage 4 down trendsstage 4 down trends.. The question is not “if” to short, but “when” to short the rally (breakdown).

While the downtrend signifies that the stock is in a “Major” Stage 4, note that the downtrend itself has minor stage 1s, 2s, 3s & 4s. 4

3

4

1

2

3

4

1

2

Bearish Stage 4


Pristine traders short when theMinor 4 matches the Major 4. Herein lies the master key to stock market accuracy on the short side. The question of “when” to short is now answered. A short is triggered each time there is a stage to stage “MATCH.” DonDon’’t Miss This t Miss This Concept. It Is PricelessConcept. It Is Priceless!!

SellSell

SellSell


The short setup develops as follows:The short setup develops as follows:

4

3

1

24


3


2


4

1


Entire trend is Major stage 4Entire trend is Major stage 4

Part IVPart IV

Pristine’s Master Pristine’s Master Buy and Sell SetBuy and Sell Set--upsups

The Key The Key BuyBuy Setup is made up of only a few basic Setup is made up of only a few basic criteria.criteria.

This setup is the key to capturing big 1This setup is the key to capturing big 1-- to 5to 5--bar trading bar trading gains on the upside.gains on the upside.

The trader can often use this one setup alone to buy The trader can often use this one setup alone to buy without any other guide.without any other guide.

Pristine’s Buy SetupPristine’s Buy Setup

11stst CriteriaCriteria 3 or more consecutive lower highs (major emphasis on the highs).3 or more consecutive lower highs (major emphasis on the highs).22ndnd CriteriaCriteria 3 or more consecutive lower lows3 or more consecutive lower lows33rdrd CriteriaCriteria 3 or more consecutive dark (red) bars.3 or more consecutive dark (red) bars.Note:Note: At times, it is acceptable for the close to be above the open onAt times, it is acceptable for the close to be above the open on the last daythe last day.

Stock has 3 or more lower

highs.

Note that this set up is a

Minor Stage 4Downtrend



Pristine’s Key Buy Setup (PBS)Pristine’s Key Buy Setup (PBS)

11

22

33aa

bb

cc

1) 1) BuyBuy when the stock trades above the prior day’s high, or 2) 2) BuyBuy when the stock trades above its first 30-minute high.

Note:Note: Only use Buy Action 2 if the prior day’s high is too far away.

Buy $0.05 to $0.10 above the

prior day’s high.

Stop loss $0.05 to $0.10 below the current or prior day’s low.

3) Place a stop $0.05 to $0.10 below the entry day’s low, or the prior day’s low, whichever is lower.

Objective

4) Use a trailing stop under each prior low after two complete bars until a) the price objective is met, b) a reversal bar has developed or c) a gap up has occurred.

Pristine’s Buy ActionPristine’s Buy Action

This chart of CMB shows a This chart of CMB shows a perfect Pristine Key perfect Pristine Key Buy Buy SetSet--up. The up. The Green ArrowGreen Arrow points points to the buy bar. The to the buy bar. The Red LineRed Linesignifies where the Pristine signifies where the Pristine Trader places his stop.Trader places his stop.

Pristine’s KeyPristine’s Key BuyBuy SetSet--upup

1)1) 3 Consecutive lower highs 3 Consecutive lower highs and lower lows (and lower lows (number 1number 1).).

2)2) Close on each day is below Close on each day is below the open price. Exceptions the open price. Exceptions cancan

be made either on the third be made either on the third day or when the pattern is day or when the pattern is perfect.perfect.

CHASE MANHATTAN (CMB)CHASE MANHATTAN (CMB)

The chart of CMB shows two The chart of CMB shows two perfect Pristine Key perfect Pristine Key Buy Buy SetSet--ups. The ups. The Green ArrowsGreen Arrows point point to the to the buybuy bars. bars.

The The Red LinesRed Lines signify where signify where the Pristine Trader places his the Pristine Trader places his stopsstops ..

Pristine’s Key Pristine’s Key Buy Buy SetSet--upup

1)1) 3 Consecutive lower highs 3 Consecutive lower highs and lower lows (and lower lows (numbernumber 1 & 21 & 2).).

2)2) Close on each day is below Close on each day is below the open price. Exceptions can the open price. Exceptions can be made on the third day or be made on the third day or when the pattern is perfect.when the pattern is perfect.


Pristine Buy Example (1)Pristine Buy Example (1)

40ma40ma

20ma20ma

Rising 20ma +Rising 20ma +


20m > 40ma +20m > 40ma +

PBS w/ micro 3 +PBS w/ micro 3 +

CCI (5) Buy SignalCCI (5) Buy Signal

Buy above Prior HighBuy above Prior High


40ma40ma20ma20ma



20m > 40ma +20m > 40ma +


CCI (5) Buy SignalCCI (5) Buy SignalBuy above Prior HighBuy above Prior High

The Key The Key ShortShort Setup is made up of only a few basic criteria.Setup is made up of only a few basic criteria.

This setup is the key to capturing big 2This setup is the key to capturing big 2-- to 5to 5--day trading gains day trading gains on the downside.on the downside.

The trader can often use this one setup alone to short without The trader can often use this one setup alone to short without any other guide to trade the markets.any other guide to trade the markets.

Pristine’s Key Short Setup (PSS)Pristine’s Key Short Setup (PSS)

11stst CriteriaCriteria 3 or more consecutive higher lows.3 or more consecutive higher lows. (major emphasis on the lows).22ndnd CriteriaCriteria 3 or more consecutive higher highs.3 or more consecutive higher highs.33rdrd CriteriaCriteria 3 or more consecutive light (green) bars.3 or more consecutive light (green) bars.Note:Note: At times, it is acceptable for the close to be below the open on the last day.

Stock has 3 or more higher lows.


Minor Stage 2Up trend




11

22

33aa

bb

cc

1) Short when the stock trades below the prior day’s low, or 2) Short when the stock trades below its first 30-minute low.

Note: Only use Short Action 2 if the prior day’s low is too far away.

Objective

4) Use a trailing stop above each prior day’s high until a) the price objective is met,b) a reversal bar has developed or c) a gap down has occurred.

Stop loss $0.05 to $0.10 above the current or prior day’s high.

3) Place a stop $0.05 to $0.10 above the entry day’s high, or the prior day’s high, whichever is higher. Traders with a very low threshold for pain should use the entry day’s high.

Short $0.05 to $0.10 below the prior day’s low.

Pristine’s Short ActionPristine’s Short Action

Pristine Sell SetPristine Sell Set--up (PSS)up (PSS)

PSSPSS

3 or more consecutive higher lows3 or more consecutive higher lowsAfter a lower low (LL), the swing trader looks for:After a lower low (LL), the swing trader looks for:

LLLL

LLLL


PSS w/ COGPSS w/ COG


LLLL


3 or more consecutive higher lows3 or more consecutive higher lows

After a lower low (LL), After a lower low (LL), the swing trader looks for:the swing trader looks for:

LLLL

PSSPSS

Pristine Video CollectionPristine Video Collection

For a list of other Pristine videos, visit:

http://www.pristine.com/newvideo_core.htm

Pristine SeminarsPristine Seminars

Core Trading for a LivingCore Trading for a Living

With With







FoundationFoundation

The Key EventsThe Key Events

The StrategiesThe Strategies

The Major Time ShiftThe Major Time Shift

Fundamental vs. TechnicalFundamental vs. Technical

Four Styles of TradingFour Styles of Trading

Core Trading vs. InvestingCore Trading vs. InvestingMacro Core vs. Micro CoreMacro Core vs. Micro Core

3 to 5 Bar Set3 to 5 Bar Set--upsups

Tail SetTail Set--upsups

The NeverThe Never--ending Battleending Battle

Pristine Buy/Sell ZonePristine Buy/Sell Zone™™

Mighty MA PlayMighty MA PlayCore Trading DefinedCore Trading Defined

COGCOG™™ SetSet--upsups

CBSCBS™™ & CSS& CSS™™ PlaysPlays

Tools of the Core TradeTools of the Core Trade

The Major Analytical ShiftThe Major Analytical Shift

Putting It All TogetherPutting It All Together



20 years ago, the typical investor looked to hold a stock position for

4 ½ years, on average.

The Major Time ShiftThe Major Time Shift

Fact # 1Fact # 1 Fact # 2Fact # 2

Today, the typical investor looks to hold a

stock position for 4 ½ months.

We believe, the investor’s average holding period for any stock will drop

to 4 ½ weeks….

Pristine TheoriesPristine Theories

Theory # 1Theory # 1 Theory # 2Theory # 2

Long-term Investing,

commonly referred to as the “buy-and-hold” approach, is

becoming less effective each year!inside of 2 years!!inside of 2 years!!

The Dynamics of ChangeThe Dynamics of Change

What has led to this dramatic change?What has led to this dramatic change?

I) 25 Year Decline in Commission Rates

II) Worldwide Collapse in Interest Rates

III) Phenomenal Technological Advancements

IV) New Order Handling Rules

V) The Advent of the Internet

VI) A More Sophisticated Public

Fundamental vs. TechnicalFundamental vs. Technical

20 years ago, fundamental analysis was

considered the only proper way to make market

decisions

Fact # 1Fact # 1 Fact # 2Fact # 2

“Today, the ‘purely’

fundamental analyst is

virtually extinct.” – Mark Douglas, author of

The Disciplined Trader and Trading In The Zone

The Dynamics of the Analytical ShiftThe Dynamics of the Analytical Shift

What has led to this dramatic shift?What has led to this dramatic shift?

I) Money!

II) Markets are not mathematically logical and/or rational

III) The hopes and fears of people move stocks

IV) Under extreme stress and glee, people react the same way.

V) Charts are the foot prints of these actions and reactions

VI) In other words: Charts Don’t Lie!Charts Don’t Lie!

FoundationFoundation

The Building BlocksThe Building Blocks


Types of TradingTypes of Trading

Four Styles of Trading:Four Styles of Trading: CoreCore;; SwingSwing;; GuerillaGuerilla;; MicroMicro

Which fall into….Which fall into….

Two Broad Trading Categories:Two Broad Trading Categories: WealthWealth;; IncomeIncome

Two Broad Trading CategoriesTwo Broad Trading Categories

Wealth Trading StylesWealth Trading Styles Income Trading StylesIncome Trading Styles

Core TradingCore Trading

Swing TradingSwing Trading

Guerilla TradingGuerilla Trading™™

Micro TradingMicro Trading

- Weekly Charts

- Daily Charts

- 60 Min & 30 Min

- Hours to Days- Weeks to Months

- Days to Weeks

- 5 Min & 15-Min

- Minutes to Hours

The Pristine PhilosophyThe Pristine Philosophy


The Pristine Trading Philosophy calls for a The Pristine Trading Philosophy calls for a trader to have trader to have 1)1) a a WealthWealth Building trade andBuilding trade and

2)2) an an IncomeIncome Producing trade on….Producing trade on….

At All Times!At All Times!

Core Trading DefinedCore Trading Defined

What is Core Trading?What is Core Trading?1)1) A style of market play that typically covers a holding period of several weeks to several monthsseveral weeks to several months.

2)2) There are two forms of Core Trading: MacroMacro;; MicroMicro

3)3) This style of trading has become the new form of investingnew form of investing.

4)4) The Core Trader uses weekly chartsweekly charts to make entries and exits.

5)5) Core Trading is best used on key stockskey stocks and indicesindices.

6)6) Core Trading is the key to capturing substantially bigger gainssubstantially bigger gainsthan the swing and/or day trader is accustomed to.

7)7) Core Trading is style of trading that can be practiced by ALLcan be practiced by ALL!!

Core Trading vs. InvestingCore Trading vs. Investing

Chart Courtesy of MasterTrader.comChart Courtesy of MasterTrader.com

Core Trader Core Trader Buys!Buys!

Investor Investor Buys!Buys!

Core Trader Core Trader Sells!Sells!

Core Trader Core Trader Sells!Sells!

r20mar20ma

r40mar40ma

Core Trader Core Trader Shorts!Shorts!

The Investor is a loser!The Investor is a loser!

d20mad20ma

d40mad40ma

Shorts!Shorts!

Macro vs. Micro Core TradingMacro vs. Micro Core Trading

Charts Courtesy of MasterTrader.comCharts Courtesy of MasterTrader.com

Macro Core Trader Macro Core Trader Buys!Buys!

Macro Core Trader Macro Core Trader Sells!Sells!

Key Point:Key Point: The Macro Core Trader looks to ride the entire (macro) move, while ignoring the temporary weekly set backs.

Micro Core Trader Micro Core Trader Buys!Buys!

Micro Core Trader Micro Core Trader Sells!Sells!

Micro Core Trader Micro Core Trader Sells!Sells!r20mar20ma

r40mar40ma

r20mar20ma

r40mar40ma

Key Point:Key Point: The Micro Core Trader only looks to ride one color, primarily. This is the “no pain” approach.

Core Trading Chart (QQQ)Core Trading Chart (QQQ)


20ma20ma40ma40ma

SS

SS

SS

SS

BB

BB

BB

33--55

CBSCBS

CSSCSS

33--5533--55

Volume Climax

20ss20ssBTBT

Color Coded VolumeColor Coded Volume

Candlestick BarsCandlestick Bars

Pristine Charting Power!!Pristine Charting Power!!

Core Trading ToolsCore Trading Tools

Tools of the Core TradeTools of the Core Trade

Charting Tools:Charting Tools: Weekly charts displayed in Weekly charts displayed in Japanese Candlestick form.Japanese Candlestick form.

Technical Tools:Technical Tools: Color coded volume; 20 & 40 Color coded volume; 20 & 40 period ‘simple’ moving averages.period ‘simple’ moving averages.

Weekly Chart with VolumeWeekly Chart with Volume

Japanese CandlesticksJapanese Candlesticks

Color coded VolumeColor coded Volume

Small BarsSmall Bars

Wide BarsWide Bars

Core Trading ToolsCore Trading Tools

BBBB

BBBB BB

r20mar20mar40mar40ma

Japanese CandlesticksJapanese Candlesticks

Color coded VolumeColor coded Volume

The Only Tools You Need!The Only Tools You Need!1) Weekly Chart1) Weekly Chart

2) Colored Volume2) Colored Volume

3) 20sma3) 20sma

4) 40sma4) 40sma


The Weekly BattleThe Weekly Battle



HighHigh

LowLow

CloseClose

OpenOpen

OpenOpen

CloseClose

HighHigh

LowLow








The Key EventsThe Key Events

3 Key Pristine Events3 Key Pristine Events


3 to 5 Bar Rallies3 to 5 Bar Rallies

3 Pictures of Greed3 Pictures of Greed





3 to 5 Bar Declines3 to 5 Bar Declines

3 Pictures of Pain3 Pictures of Pain




Count Your Way to ProfitsCount Your Way to Profits


5 Red Bars5 Red Bars

4 Green Bars4 Green Bars

3 Red Bars3 Red Bars3 Red Bars3 Red Bars








3 Red Bars3 Red Bars4 Red Bars4 Red Bars



Bull & Bear TailsBull & Bear Tails

Bottoming & Topping TailsBottoming & Topping Tails

Topping Tail (TT)Topping Tail (TT)

3 or more green bars3 or more green bars++

Bottoming Tail (BT)Bottoming Tail (BT)

3 or more red bars3 or more red bars++


Topping Tail Play ITopping Tail Play I



66--UpUp

Topping TailTopping Tail

The Party is Over!The Party is Over!

1) 6 Up Bars in a row1) 6 Up Bars in a row

2) Topping Tail (TT)2) Topping Tail (TT)


66--UpUp


$160 Catastrophe!$160 Catastrophe!


Bottoming Tail IBottoming Tail I



Bottoming TailBottoming Tail

66--DownDown

1) 6 Down Bars in a row1) 6 Down Bars in a row2) Bottoming Tail2) Bottoming Tail

It’s Party Time!It’s Party Time!


Bottoming TailBottoming Tail

66--DownDown

110% Party!110% Party!


Bull & Bear COGBull & Bear COG

Changing of the Guard (COG)Changing of the Guard (COG)3 or more green bars3 or more green bars

++

Bear COGBear COG™™ Bull COGBull COG™™



Bear Changing of the GuardBear Changing of the Guard™™


r40mar40ma

Bear COGBear COG™™

55--UpUp


1) 5 Up Bars in a row1) 5 Up Bars in a row2) Bear COG2) Bear COG™™3) Topping Tail (TT)3) Topping Tail (TT)


r40mar40ma


55--UpUp


$120 Catastrophe$120 Catastrophe


Changing of the GuardChanging of the Guard™™ PlaysPlays



Bull COGBull COG™™Bull COGBull COG™™ Bull COGBull COG™™

TailsTails

4 Up Bars4 Up Bars3 Up Bars3 Up Bars

5 Down Bars5 Down Bars


4 Up 4 Up BarsBars

3 Up Bars3 Up Bars


The StrategiesThe Strategies

Pristine Core Trading StrategiesPristine Core Trading Strategies


Mighty 20ma PlaysMighty 20ma Plays

The Powerful 20ma PlayThe Powerful 20ma Play

r20mar20ma

d40mad40ma

33--5 Red Bars5 Red Bars ++

Bull COGBull COGr20mar20ma

++

==

High Odds RallyHigh Odds Rally

33--5 Green Bars5 Green Bars ++

Bear COGBear COGd20mad20ma

++==

High Odds DropHigh Odds Drop


20 MA Play I20 MA Play I


r20mar20ma

r40mar40ma

1) Rising 20 MA (r20ma) +1) Rising 20 MA (r20ma) +


3) r20ma > r40ma = 3) r20ma > r40ma =

Stock Will Rally Off r20maStock Will Rally Off r20ma

3 D/Bars3 D/Bars3 D/Bars3 D/Bars


20 MA Play II20 MA Play II




3) r20ma > r40ma = 3) r20ma > r40ma =

Stock Will Rally Off r20maStock Will Rally Off r20ma

r20mar20ma

r40mar40ma


20 MA Play III20 MA Play III



2) Declining 40 MA (d40ma) +2) Declining 40 MA (d40ma) +

3) d20ma < d40ma = 3) d20ma < d40ma =

Stock Will Decline Off d20maStock Will Decline Off d20ma



20 MA Play IV20 MA Play IV



3) d20ma < d40ma = 3) d20ma < d40ma =

Stock Will Decline Off d20maStock Will Decline Off d20ma


d20mad20ma

d40mad40ma


Pristine Buy & Sell ZonesPristine Buy & Sell Zones™™

Pristine Buy & Sell ZonesPristine Buy & Sell Zones

Pristine Sell ZonePristine Sell Zone™™ PlayPlay(PSZ)(PSZ)

Pristine Buy ZonePristine Buy Zone™™ PlayPlay(PBZ)(PBZ) d40mad40ma

r20mar20ma

r40mar40ma

d20mad20ma

Buy ZoneBuy Zone

Sell ZoneSell Zone


Pristine Buy ZonePristine Buy Zone™™ Play IPlay I




Pristine Buy ZonePristine Buy Zone™™ Play IIPlay II


r20mar20ma

r40mar40ma


Pristine Sell ZonePristine Sell Zone™™ Play IPlay I




Pristine Sell ZonePristine Sell Zone™™ Play IIPlay II




Climactic Buy & Sell SetClimactic Buy & Sell Set--upup

Climactic Buy & Sell SetClimactic Buy & Sell Set--upsups

Climactic SellClimactic Sell

Climactic BuyClimactic Buy

Wid

e D

ista

nce

Wid

e D

ista

nce

20ma20ma

40ma40ma

Wid

e D

ista

nce

Wid

e D

ista

nce

5 or M

ore U

p Bar

s

5 or M

ore U

p Bar

s

5 or More Down Bars

5 or More Down Bars

Snap Back to 20ma

Snap Back to 20ma

Snap

Bac

k to

40m

a

Snap

Bac

k to

40m

a


Climactic Sell SetClimactic Sell Set--up Iup I


r20mar20ma

r40mar40ma


2) 2 Topping Tails (TT)2) 2 Topping Tails (TT)

3) Wide Distance from 20ma3) Wide Distance from 20ma


2TT2TT

66--UpUp

2TT2TT

66--UpUp



Climactic Sell SetClimactic Sell Set--up IIup II


55--UpUp

3TT3TT



2) 3 Topping Tails (TT)2) 3 Topping Tails (TT)

3) Wide Distance from 20ma3) Wide Distance from 20ma

4) Climactic Volume4) Climactic Volume

r20mar20ma

r40mar40ma

Climactic VolumeClimactic Volume

55--UpUp

3TT3TT

r20mar20ma

r40mar40ma



Climactic Sell SetClimactic Sell Set--up IIIup III



Tail/COGTail/COG

55--UpUp


2) Topping Tail (TT)2) Topping Tail (TT)

3) Bearish COG3) Bearish COG

The Party is Over!The Party is Over!4) Wide Distance from 20ma4) Wide Distance from 20ma

Tail/COGTail/COG

55--UpUp

r20mar20ma

r40mar40ma



Climactic Buy SetClimactic Buy Set--up Iup I


99--DownDown

d20mad20ma

1) 9 Down Bars in a row1) 9 Down Bars in a row2) Climactic Volume2) Climactic Volume


It’s Party Time!It’s Party Time!

3) Far from 20ma3) Far from 20ma


125% Party!125% Party!

d20mad20ma

99--DownDown


Climactic Buy SetClimactic Buy Set--up IIup II


d20mad20ma

COGCOG

66--DownDown

1) 6 Down Bars in a row1) 6 Down Bars in a row2) Bullish COG2) Bullish COG3) Far from 20ma3) Far from 20ma

It’s Party Time!It’s Party Time! COGCOG

66--DownDown

d20mad20ma

A 100% PartyA 100% Party


Climactic Buy SetClimactic Buy Set--up IIIup III


d20mad20ma

44--DownDown

COGCOG


1) 4 Down Bars in a row1) 4 Down Bars in a row2) Climactic Volume2) Climactic Volume3) Bullish COG3) Bullish COG4) Far from 20ma4) Far from 20ma

It’s Party Time!It’s Party Time!44--DownDown

COGCOG


$12 Party$12 Party

Core Trading SummaryCore Trading Summary

Core Trading CombinationsCore Trading Combinations3 to 5 Bar Buy/Sell Set3 to 5 Bar Buy/Sell Set--upsups

1) Topping/Bottoming Tails1) Topping/Bottoming Tails

2) Bull/Bear COG Set2) Bull/Bear COG Set--upsups

Can happen with:Can happen with:

and/orand/or

Powerful Core Powerful Core TradingTrading

CombinationsCombinations

These Combinations can happen:These Combinations can happen:1) 1) AtAt or or NearNear the 20mathe 20ma

2) 2) InIn the Buy/Sell Zonesthe Buy/Sell Zones

3) 3) FarFar from the 20mafrom the 20ma

oror

oror

LocationLocation

STOCK UNIVERSE AND YOUR PLANSTOCK UNIVERSE AND YOUR PLAN

STOCK UNIVERSESTOCK UNIVERSE

Introduces



STOCK UNIVERSESTOCK UNIVERSESTOCK UNIVERSESTOCK UNIVERSE

What is ?• Inspired by feedback from our

seminar students, subscribers, and the active trading community, Pristine ESP™ was developed to alert traders to the exact moment when a Pristine trading opportunity occurs.

• ESP does the work for you, using Pristine's proprietary technical analysis while scanning thousands of stocks simultaneously.

• Once a powerful setup is identified, ESP swings into action, providing real time alerts delivered without a moment's delay.


TRADING PLAN

TECHNOLOGY


What is ?• The Pristine ESP™ product is

programmed to identify key setups occurring daily in the marketplace.

• These setups are based on the proven methods that Pristine.com has been teaching successful traders for the last seven years.

• In addition, Pristine ESP™ alerts traders to stocks meeting more generic criteria.


TECHNOLOGY


What is ?

The moment an individual stock matches a defined setup, the Pristine ESP™alerts are instantaneously broadcast to the trader's computer.

Pristine ESP™ is able to simultaneously monitor the stocks on NASDAQ and NYSE and alert subscribers at the exact moment when any of these stocks

meets the defined criteria for a particular trading system.



Real TimeAlerts & Scans

• Basic provides over 30 alerts and scans.

• Master provides over 140 alerts and scans for the:

– Basic Trader– Core Trader– Swing Trader– Guerilla Trader– Micro Trader



What is ?

Through Merlin’s messages, we will be reminded of useful information.

Pristine ESP™ continually reminds the trader of certain trading timeframes, and what should be

done during those timeframes.



&Your Trading Platform

• The Pristine ESP™ can be used to provide alerts with your quote and trading platform.

• customers can link Pristine ESP™ to their trading platform, allowing the ESP selection to load automatically into the “linked” windows in addition to performing over 79 scans


STOCK UNIVERSESTOCK UNIVERSESTOCK UNIVERSESTOCK UNIVERSEWhere To Get

WWW.PRISTINE.COM

OR

Contact a Pristine Counselor today for more information

about Pristine ESP™ in addition to Pristine’s other

education services.


The Pristine Day Trader™


PDT Intra-Day UpdatesPristine Lite ™

Pristine Real Time Rooms

Guerrilla Trading Tactics Guerrilla Trading Tactics

With With





DisclaimerDisclaimer

It should not be assumed that the methods, techniques, or indicators presented in this book and seminar will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples in this book and seminar are for educational purposes only. This is not a solicitation of any order to buy or sell.

“HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES IN THIS BOOK and SEMINAR HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS WE STATE MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.”

The authors and publisher assume no responsibilities for actions taken by readers. The authors and publisher are not providing investment advice. The authors and publisher do not make any claims, promises, or guarantees that any suggestions, systems, trading strategies, or information will result in a profit, loss, or any other desired result. All readers and seminar attendees assume all risk, including but not limited to the risk of trading losses.

Guerrilla Trading can result in large losses and may not be an activity suitable for everyone.

Copyright © 1994-2002 by Pristine Capital Holdings, Inc. All rights reserved. Printed in the United States of America. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without prior written permission of the publisher.

IIntroductionntroductionThe Bullish 20/20 BarThe Bullish 20/20 Bar

The Bearish 20/20 BarThe Bearish 20/20 Bar

Guerrilla Trading Tactics Part IGuerrilla Trading Tactics Part I


Bullish Gap SurpriseBullish Gap Surprise –– Tactic ThreeTactic Three

Bearish Gap SurpriseBearish Gap Surprise –– Tactic FourTactic Four

The Pristine GapThe Pristine Gap--nn--Snap PlaySnap Play –– Tactic OneTactic One

The Pristine GapThe Pristine Gap--nn--Crap PlayCrap Play –– Tactic TwoTactic Two

Bullish 20/20 PlayBullish 20/20 Play –– Tactic FiveTactic Five

Bearish 20/20 PlayBearish 20/20 Play –– Tactic SixTactic Six


The Bull TrapThe Bull Trap –– Tactic SevenTactic Seven

The Bear TrapThe Bear Trap –– Tactic EightTactic Eight

The Bearish Mortgage PlayThe Bearish Mortgage Play –– Tactic NineTactic Nine

Guerrilla Trading Tactics Part IIGuerrilla Trading Tactics Part II

The Bullish Mortgage PlayThe Bullish Mortgage Play –– Tactic TenTactic Ten

Putting It All TogetherPutting It All TogetherGuerrilla Trading BRCMGuerrilla Trading BRCM

Guerrilla Trading MUGuerrilla Trading MU

Guerrilla Trading LLTCGuerrilla Trading LLTC





Four Styles of Trading:Four Styles of Trading: CoreCore;; SwingSwing;; GuerillaGuerilla;; MicroMicro







Guerilla TradingGuerilla Trading™™


- Weekly Charts

- Daily Charts

- Daily & 60 Min


- Days to Weeks

- 5 Min & 15-Min

- Minutes to Hours

Guerrilla Trading Guerrilla Trading –– A Brief DescriptionA Brief Description

The Guerrilla style of market play is our The Guerrilla style of market play is our most cherished form of trading. The most cherished form of trading. The tactics contained in this brief course were designed specificalltactics contained in this brief course were designed specifically for the y for the professional trader who seeks a frequent number of trading playsprofessional trader who seeks a frequent number of trading plays each day. The each day. The following tactics enjoy such a high degree of statistical accurafollowing tactics enjoy such a high degree of statistical accuracy that many of cy that many of our professional inour professional in--house traders focus on them exclusively to earn their living house traders focus on them exclusively to earn their living in the markets. in the markets. We have always taught that the professional trader needs We have always taught that the professional trader needs only 2 to 3 highly reliable trading tactics in his or her arsenaonly 2 to 3 highly reliable trading tactics in his or her arsenal in order to l in order to earn a comfortable living tradingearn a comfortable living trading. You are about to be made aware of 10 such . You are about to be made aware of 10 such tactics. Guerrilla Tactics are designed for the trader who desirtactics. Guerrilla Tactics are designed for the trader who desires to es to ““grindgrind”” out out profits over a 1 to 2 day time frame. They do not often result iprofits over a 1 to 2 day time frame. They do not often result in very large gains, n very large gains, but the consistency of their wins makes them an indispensable adbut the consistency of their wins makes them an indispensable addition to your dition to your trading arsenal. With these 10 Guerrilla Trading Tactics, we beltrading arsenal. With these 10 Guerrilla Trading Tactics, we believe your ieve your trading will be taken to an entirely new level. In advance, wetrading will be taken to an entirely new level. In advance, we’’d like to say, d like to say,

““Welcome to PristineWelcome to Pristine’’s Professional Trading Circles Professional Trading Circle..””

Bullish20/20 Bar

BullishBullish20/20 Bar20/20 Bar

Close at or near the top of the bar’s range

Close at or Close at or near the top of near the top of the bar’s rangethe bar’s range

Open at or near the

bottom of the bar’s range

Open at or Open at or near the near the

bottom of the bottom of the bar’s rangebar’s range

The The BullishBullish 20/2020/20 bar is defined bar is defined by any wideby any wide--range period that has range period that has its open price near the low of that its open price near the low of that period and its close near the high period and its close near the high of that period.of that period.

We call it We call it 20/2020/20 because as a because as a general rule, the open should be in general rule, the open should be in the lower 20% of the periodthe lower 20% of the period’’s s range, and the close should be in range, and the close should be in the upper 20% of the periodthe upper 20% of the period’’s s range, making a long, green range, making a long, green colored candlestick.colored candlestick.

BullishBullish 20/2020/20 bars are far more bars are far more important when they occur after important when they occur after at least one prior up bar. Several at least one prior up bar. Several proceeding up bars make the proceeding up bars make the 20/2020/20 more significant.more significant.

The Bullish 20/20 BarThe Bullish 20/20 Bar

The Bullish 20/20 BarThe Bullish 20/20 Bar

BullishBullish 20/2020/20 bars form the bars form the basis of many trading techniques.basis of many trading techniques.

The The BullishBullish 20/2020/20 bar signifies bar signifies that many traders and investors are that many traders and investors are already long.already long.

This last fact is what sets up a This last fact is what sets up a possible reversal to the downside.possible reversal to the downside.

BullishBullish 20/2020/20 bars have more bars have more significance when they occur significance when they occur ““afterafter”” a decent move to the a decent move to the upside. We look for at least one upside. We look for at least one prior up bar. prior up bar.


Bullish20/20 Bar

BullishBullish20/20 Bar20/20 Bar

Close at or near the top of the bar’s range

Close at or Close at or near the top of near the top of the bar’s rangethe bar’s range

Open at or near the

bottom of the bar’s range

Open at or Open at or near the near the

bottom of the bottom of the bar’s rangebar’s range


The The BearishBearish 20/2020/20 bar is defined by bar is defined by any wideany wide--range period that has its range period that has its open price near the high of that open price near the high of that period and its close near the low of period and its close near the low of that period.that period.

We call it We call it 20/2020/20 because as a because as a general rule, the open should be in general rule, the open should be in the upper 20% of the periodthe upper 20% of the period’’s range, s range, and the close should be in the lower and the close should be in the lower 20% of the period20% of the period’’s range, making a s range, making a long, solid dark candlestick. long, solid dark candlestick.

BearishBearish 20/2020/20 bars are far more bars are far more important when they occur after at important when they occur after at least one prior down bar. Several least one prior down bar. Several proceeding down bars make the proceeding down bars make the 20/2020/20 more significant.more significant.

Bearish20/20 Bar

BearishBearish20/20 Bar20/20 Bar

Close at or near the

bottom of the bar’s

range

Close at or Close at or near the near the

bottom of bottom of the bar’s the bar’s

rangerange

Open at or near the top of the bar’s

range

Open at or Open at or near the top near the top of the bar’s of the bar’s

rangerange


BearishBearish 20/2020/20 bars form the basis of bars form the basis of many trading techniques.many trading techniques.

BearishBearish 20/2020/20 bars have more bars have more significance when they occur significance when they occur ““afterafter”” a a decent move to the downside. We decent move to the downside. We look for at least one prior down bar. look for at least one prior down bar.

The The BearishBearish 20/2020/20 bar signifies that bar signifies that many traders have already sold.many traders have already sold.

This last fact is what sets up a This last fact is what sets up a possible reversal possible reversal back toback to the upside.the upside.


Bearish20/20 Bar

BearishBearish20/20 Bar20/20 Bar

Close at or near the

bottom of the bar’s

range

Close at or Close at or near the near the

bottom of bottom of the bar’s the bar’s

rangerange

Open at or near the top of the bar’s

range

Open at or Open at or near the top near the top of the bar’s of the bar’s

rangerange

Tactics Part ITactics Part I

The Pristine GapThe Pristine Gap––nn––Snap Play Snap Play -- Tactic OneTactic One

This method works best as a oneThis method works best as a one-- to twoto two--day trading day trading tactic.tactic.

It works best on volatile NASDAQ stocks above $20 per It works best on volatile NASDAQ stocks above $20 per share or NYSE stock above $40.share or NYSE stock above $40.

Properly used, this tactic can enjoy an Properly used, this tactic can enjoy an 84%84% accuracy rate.accuracy rate.

1.1. The stock should be down at The stock should be down at least two days in a row. least two days in a row.

2.2. We need a wideWe need a wide--range bar on the range bar on the current day. At least $1.00current day. At least $1.00..

3.3. The open of the current day must The open of the current day must be in the top 20% of the daybe in the top 20% of the day’’s s price range.price range.

4.4. The close must be in the bottom The close must be in the bottom 20% of the day20% of the day’’s price range.s price range.

Stock down 2 days in a row.

The SetupThe Setup / The Action


1. 1. If the stock gaps open to the If the stock gaps open to the downside by $0.50 or more, downside by $0.50 or more, and then begins to rally back, and then begins to rally back, buy it $0.05 to $0.10 above buy it $0.05 to $0.10 above the previous daythe previous day’’s low.s low.


Stock gaps downat the open.

Buy long at $0.05 to $0.10 above the

previous day’s low.

3.3. Sell for a $2 plus profit or Sell for a $2 plus profit or on the 3rd day, whichever on the 3rd day, whichever comes first.comes first.

Stop loss $0.05 to $0.10 below the current day’s low.

2.2. Place a protective stop $0.05Place a protective stop $0.05to $0.10 below the current to $0.10 below the current dayday’’s low.s low.

The Setup / The ActionThe Action


The Pristine GapThe Pristine Gap––nn––Crap Play Crap Play -- Tactic TwoTactic Two


It works best on volatile NASDAQ stocks above $20 per It works best on volatile NASDAQ stocks above $20 per share or NYSE stocks above $40.share or NYSE stocks above $40.


1.1. The stock should be up at The stock should be up at least two days in a row.least two days in a row.

2.2. We need a wideWe need a wide--range bar range bar on the current day. At least on the current day. At least $1.00.$1.00.

3.3. The open must be in the low The open must be in the low 20% of the day20% of the day’’s range.s range.

4.4. The close must be in the The close must be in the high 20% of the dayhigh 20% of the day’’s range.s range.

The SetupThe Setup / The Action/ The Action

Stock up 2 days in a

row.

The Pristine GapThe Pristine Gap––nn––Crap Play / Tactic TwoCrap Play / Tactic Two

The SetupThe Setup / / The ActionThe Action

1.1. If the stock gaps open to the If the stock gaps open to the upside by $0.50 or more, and upside by $0.50 or more, and then begins to fall back, sell then begins to fall back, sell (short) $0.05 to $0.10 below (short) $0.05 to $0.10 below the previous daythe previous day’’s high. s high.

Stock gaps upat the open .

Stock up 2 days in a

row. Sell short at $0.05 to $0.10 below the

previous day’s high.

Stop loss $0.05 to $0.10 above the

current day’s high.

2.2. Place a protective stop Place a protective stop $0.05 to $0.10 above the $0.05 to $0.10 above the current daycurrent day’’s high.s high.

3.3. Cover for a $2 plus profit Cover for a $2 plus profit or on the 3rd day, whichever or on the 3rd day, whichever comes first.comes first.

The Pristine GapThe Pristine Gap––nn––Crap Play / Tactic TwoCrap Play / Tactic Two

Gap n Snap PlayGap n Snap Play

Chart Courtesy of Mastertrader.comChart Courtesy of Mastertrader.com

Gap n SnapGap n Snap

BuyBuy

SellSell

Gap n Crap PlayGap n Crap Play


Gap n CrapGap n Crap

ShortShort

CoverCover

Bullish Gap Surprise Bullish Gap Surprise –– Tactic ThreeTactic Three

This method works best as a oneThis method works best as a one-- to twoto two--day trading tactic.day trading tactic.

It works best on volatile NASDAQ stocks above $20 per share It works best on volatile NASDAQ stocks above $20 per share or NYSE stocks above $40.or NYSE stocks above $40.


1. The stock should be down at The stock should be down at least two days in a row.least two days in a row.

2.2. We need a wideWe need a wide--range day of at range day of at least $1.00.least $1.00.

3.3. The open must be in the top The open must be in the top 20% of the day20% of the day’’s range.s range.

4.4. The close must be in the bottom The close must be in the bottom 20% of the day20% of the day’’s range.s range.



5. Above average volume on the Above average volume on the current day (optional).current day (optional).

Above average or climactic volume.



Stock gaps upat the open. Buy

immediately.



1.1. If the stock opens (gaps) If the stock opens (gaps) up by at least $0.50 to $1 up by at least $0.50 to $1 above the previous dayabove the previous day’’s s closing price, closing price, buy it buy it immediatelyimmediately. You can also . You can also buy it buy it above the first 5above the first 5--min. highmin. high (Conservative).(Conservative).

Stop loss $0.05 to $0.10 below the prior day’s low.

2.2. Place a protective stop Place a protective stop $0.05 to $0.10 below the $0.05 to $0.10 below the prior dayprior day’’s low.s low.

3.3. Sell for a $2 to $3 plus Sell for a $2 to $3 plus profit or on the 3rd day, profit or on the 3rd day, whichever comes first.whichever comes first.


Bearish Gap Surprise Bearish Gap Surprise –– Tactic FourTactic Four



Properly used, this tactic can enjoy an Properly used, this tactic can enjoy an 84%84% accuracy rateaccuracy rate


1. The stock should be up The stock should be up at least two days in a at least two days in a row.row.

2.2. We need a wideWe need a wide--range range day of at least $1.00.day of at least $1.00.

3.3. The open must be in the The open must be in the bottom 20% of the daybottom 20% of the day’’s s range.range.

4.4. The close must be in the The close must be in the top 20% of the daytop 20% of the day’’s s range.range.

Stock up 2 days in a row.


5. Above average volume on Above average volume on the current day (optional).the current day (optional).



Stock gaps downat the open. Sell

immediately.Above average or climactic volume.

The SetupThe Setup / / The ActionThe Action1.1. If the stock opens (gaps) If the stock opens (gaps) down by at least $0.50 to $1 down by at least $0.50 to $1 below the previous daybelow the previous day’’s s closing price, closing price, sell (short) it sell (short) it immediatelyimmediately.. You can also You can also sell it short sell it short below the first 5 below the first 5 min. low.min. low.

Stop loss $0.05 to $0.10 above the prior day’s high.

2.2. Place a protective stop Place a protective stop $0.05 to $0.10 above the prior $0.05 to $0.10 above the prior dayday’’s high.s high.

3.3. Cover for a $2 to $3 plus Cover for a $2 to $3 plus profit or on the 3rd day, profit or on the 3rd day, whichever comes first.whichever comes first.


Bullish Gap Surprise (+BGS)Bullish Gap Surprise (+BGS)


Bull TrapBull Trap

+BGS+BGS+BGS+BGS

+BGS+BGS

Bullish Gap Surprise (+BGS)Bullish Gap Surprise (+BGS)


Bullish Gap SurprisesBullish Gap Surprises

+BGS+BGS

Bearish Gap Surprise (Bearish Gap Surprise (--BGS)BGS)


--BGSBGS

Major SupportMajor Support

Bullish 20/20 Play Bullish 20/20 Play –– Tactic FiveTactic Five



Properly used, this tactic can enjoy an Properly used, this tactic can enjoy an 84%84% accuracy rateaccuracy rate


This play has slightly better This play has slightly better odds on the bullish side.odds on the bullish side.

1.1. The stock should be down at The stock should be down at least two days in a row.least two days in a row.

2.2. We need a wideWe need a wide--range day of at range day of at least $1.00.least $1.00.

3.3. The open must be in the top The open must be in the top 20% of the day20% of the day’’s range.s range.

4. 4. The close must be in the bottom The close must be in the bottom 20% of the day20% of the day’’s range.s range.


Above Average Volume.5.5. Above average volume on the Above average volume on the

current day (optional).current day (optional).




Stock opens relatively even. Use 30-Min. Buy Rule.

Above Average Volume.

1.1. If the stock opens less then $0.50 If the stock opens less then $0.50 point above or below the previous point above or below the previous dayday’’s low, wait for 30 minutes of s low, wait for 30 minutes of trading to transpire. Then, trading to transpire. Then, buybuy the the stock an $0.05 to $0.10 above the stock an $0.05 to $0.10 above the high established during the first 30 high established during the first 30 minutes of trading. minutes of trading.

Stop loss $0.05 to $0.10 below the lowest low of the last two days.

2.2. Place a protective stop $0.05 to Place a protective stop $0.05 to $0.10 below the current day$0.10 below the current day’’s low or s low or the previous daythe previous day’’s low, s low, whichever is whichever is lowerlower..

3.3. Sell for a $2 plus profit or on the Sell for a $2 plus profit or on the 3rd day, whichever comes first.3rd day, whichever comes first.


Bearish 20/20 Play Bearish 20/20 Play –– Tactic SixTactic Six



Properly used, this tactic can enjoy an Properly used, this tactic can enjoy an 84%84% accuracy accuracy rate.rate.

The SetupThe Setup / The Action

1. The stock should be up at The stock should be up at least two days in a row.least two days in a row.

2. 2. We need a wideWe need a wide--range day range day of at least $1.00.of at least $1.00.

3. 3. The open must be in the The open must be in the bottom 20% of the daybottom 20% of the day’’s range.s range.

4. 4. The close must be in the top The close must be in the top 20% of the day20% of the day’’s range.s range.


Above Average Volume

5. Above average volume on Above average volume on the current day (optional).the current day (optional).


The SetupThe Setup / / The Action The Action


Stock opens relatively even. Use 30-Min. Sell Rule.Above Average

Volume

1. If the stock opens less then If the stock opens less then ½½point above or below the point above or below the previous dayprevious day’’s high, wait for 30 s high, wait for 30 minutes of trading to transpire. minutes of trading to transpire. Then, Then, sell shortsell short the stock $0.05 the stock $0.05 ––$0.10 below the low established $0.10 below the low established during the first 30 minutes of during the first 30 minutes of trading.trading.

Stop loss $0.05 to $0.10 above the

highest high of the last two days.

2. Place a protective stop $0.05 Place a protective stop $0.05 to $0.10 above the current dayto $0.10 above the current day’’s s high or the previous dayhigh or the previous day’’s high, s high, whichever is higherwhichever is higher..

3. Cover for a $2 plus profit or Cover for a $2 plus profit or on the 3rd day, whichever on the 3rd day, whichever comes first.comes first.


Bear 20/20 PlayBear 20/20 Play

Bear 20/20Bear 20/20

Tactics Part IITactics Part II

The Bull Trap The Bull Trap –– Tactic SevenTactic Seven

This method works accurately on stocks in all price ranges.This method works accurately on stocks in all price ranges.

It is best used as a multiIt is best used as a multi--day strategy, and day strategy, and can result in huge gainscan result in huge gains..

It should be played with smaller than normal trading lots.It should be played with smaller than normal trading lots.

Properly used, this tactic can enjoy an incredible Properly used, this tactic can enjoy an incredible 91%91% accuracy rate.accuracy rate.

When the Bull Trap fails though, it When the Bull Trap fails though, it can result in a big loss.can result in a big loss.


1.1. The current bar must represent a very bullish day.The current bar must represent a very bullish day.

Note:Note: Preferably this day has been proceeded by a multiPreferably this day has been proceeded by a multi--day upward move.day upward move.

2.2. The open must be in the bottom 20% of the dayThe open must be in the bottom 20% of the day’’s range.s range.

3.3. The close must be in the top 20% of the dayThe close must be in the top 20% of the day’’s range.s range.

4.4. Above average volume on the current day (optional).Above average volume on the current day (optional).

A B C D



A B C

The dotted red lines in Examples A – D show where the trader goes short. Keep in mind that the Bull day does not need to be as wide as the typical 20/20 day. The key to this strategy lies in the “immediate” break to the downside.

D

1.1. Short Short the stock $0.05 to $0.10 below the low of the prior day (the Bulthe stock $0.05 to $0.10 below the low of the prior day (the Bull day) if itl day) if it’’s s been violated. been violated. Note:Note: Some traders may prefer to short the stock near the close, as iSome traders may prefer to short the stock near the close, as it is hard t is hard to determine if the stock will remain below the low of the Bull to determine if the stock will remain below the low of the Bull day. day.

2.2. Place a protective stop $0.05 to $0.10 above the current dayPlace a protective stop $0.05 to $0.10 above the current day’’s high or the previous s high or the previous dayday’’s high, s high, whichever is higherwhichever is higher ..

3.3. Cover for a $2 to $3 profit or on the 5th day, whichever comes fCover for a $2 to $3 profit or on the 5th day, whichever comes first.irst.


The Bear Trap The Bear Trap –– Tactic EightTactic Eight

This method works accurately on stocks in all price ranges.This method works accurately on stocks in all price ranges.

It is best used as a multiIt is best used as a multi--day strategy, and day strategy, and can often result in huge gainscan often result in huge gains..

It should be played with smaller than normal trading lots.It should be played with smaller than normal trading lots.

Properly used, this tactic can enjoy an incredible Properly used, this tactic can enjoy an incredible 91%91% accuracy rate.accuracy rate.

When the Bear Trap fails though, it When the Bear Trap fails though, it can result in a big losscan result in a big loss..


1.1. The current bar must represent a very bearish day.The current bar must represent a very bearish day.

Note:Note: Preferably this day has been proceeded by a multiPreferably this day has been proceeded by a multi--day down move.day down move.

2.2. The open must be in the top 20% of the dayThe open must be in the top 20% of the day’’s range.s range.

3.3. The close must be in the bottom 20% of the dayThe close must be in the bottom 20% of the day’’s range.s range.

4.4. Above average volume on the current day (optional).Above average volume on the current day (optional).


A B C D


A B C

The dotted red lines in Examples A – C show where the trader goes long. Keep in mind that the Bear day does not need to be as wide as the typical 20/20 day. The key to this strategy lies in the “immediate” break to the upside.

1.1. BuyBuy the stock $0.05 to $0.10 above the high of the prior day (the Bear day) if it’s been violated. Note:Note: Some traders may prefer to buy the stock near the close, as it is hard to determine if the stock will remain above the high of the Bear day.

2.2. Place a protective stop $0.05 to $0.10 below the current day’s low or the previous day’s low, whichever is higher.

3.3. Cover for a $2 to $3 profit or on the 5th day, whichever comes first.


D

Bull & Bear TrapsBull & Bear Traps


Bear TrapBear Trap

Bull TrapBull Trap**

** The Bull Trap was a Bearish The Bull Trap was a Bearish Gap Surprise Play first. The Gap Surprise Play first. The Guerrilla Trader got two solid Guerrilla Trader got two solid signals to go short UTX.signals to go short UTX.

Bear Trap PlayBear Trap Play


Bear TrapBear Trap

BuyBuy

SellSell

Bear Trap PlayBear Trap Play


Bear TrapBear Trap

Bear 20/20 PlayBear 20/20 Play

BuyBuy

SellSell

ShortShort

CoverCover

The Bearish Mortgage Play The Bearish Mortgage Play –– Tactic NineTactic Nine

This short method, while accurate, will deliver huge losses whenThis short method, while accurate, will deliver huge losses when it fails.it fails.

It is also an excellent intraIt is also an excellent intra--day tactic, but is best applied to the 60day tactic, but is best applied to the 60--min min time frame at the open.time frame at the open.

This short tactic is actually a derivative of the Bull Trap.This short tactic is actually a derivative of the Bull Trap.

Properly used, this short tactic can enjoy a Properly used, this short tactic can enjoy a 94%94% accuracy rate (3 to 10 accuracy rate (3 to 10 day holding period on average).day holding period on average).


1.1. Bar 1Bar 1 must be amust be a bullishbullish 20/20 bar. This is the bar that indicates that a large number o20/20 bar. This is the bar that indicates that a large number of f longs have been committed. longs have been committed. Note:Note: The smaller the upper and lower tails on The smaller the upper and lower tails on Bar 1Bar 1 the better.the better.

2.2. Bar 2Bar 2 must open must open belowbelow the low of the low of Bar 1.Bar 1.Note:Note: The Mortgage Play is only a twoThe Mortgage Play is only a two--bar strategy.bar strategy.

A B


OpenOpen


A B

The Mortgage Short Play requires a great deal of faith on the part of the trader. Not only must the trader wholeheartedly believe in the accuracy of the strategy, he must have the stomach and the proper size bank account that can handle taking the large loss without much damage, if need be. Note how far away the stops, signified by the dotted red lines, are in Examples A – B. We encourage playing small.Big potential gains go hand in hand with big potential losses. ?

Short at Open

1.1. ImmediatelyImmediately shortshort at the market when at the market when Bar 2Bar 2 opens below the low of opens below the low of Bar 1.Bar 1. Note:Note:This signifies that now every hedge fund, This signifies that now every hedge fund, mutual fund, trader, and investor who mutual fund, trader, and investor who bought during bought during Bar 1Bar 1 is now in negative is now in negative territory. All longs are thrown for a loop.territory. All longs are thrown for a loop.

2.2. Place your stop just over the high of Place your stop just over the high of Bar 1Bar 1. . Note:Note: This makes this tactic very This makes this tactic very high riskhigh risk. If it fails, the loss is typically . If it fails, the loss is typically large, unless the range of Bar 1 is not that large, unless the range of Bar 1 is not that big and the gap down is not that large or big and the gap down is not that large or severe. Many traders may want to opt for severe. Many traders may want to opt for an arbitrary stop.an arbitrary stop.

3.3. Use a trailing stop strategy untilUse a trailing stop strategy until a)a) your your objective has been met,objective has been met, b)b) the high of a the high of a reversal bar has been violated orreversal bar has been violated or c) c) a gap a gap down occurs.down occurs.


The Bullish Mortgage Play The Bullish Mortgage Play –– Tactic TenTactic Ten

This long method, while accurate, will deliver huge losses when This long method, while accurate, will deliver huge losses when it fails.it fails.

It is also an excellent intraIt is also an excellent intra--day tactic, but is best applied to the 60day tactic, but is best applied to the 60--min min time frame at the open.time frame at the open.

This long tactic is actually a derivative of the Bear Trap.This long tactic is actually a derivative of the Bear Trap.

Properly used, this long tactic can enjoy a Properly used, this long tactic can enjoy a 94%94% accuracy rate (3 to 10 accuracy rate (3 to 10 day hold on average).day hold on average).


1.1. Bar 1Bar 1 must be a must be a bearishbearish 20/20 bar. This is the bar that indicates that a large 20/20 bar. This is the bar that indicates that a large number of traders have sold. number of traders have sold. Note:Note: The smaller the upper and lower tails on The smaller the upper and lower tails on Bar 1Bar 1 the better.the better.

2.2. Bar 2Bar 2 must open must open aboveabove the high ofthe high of Bar 1.Bar 1.Note: The Mortgage Play is only a twoNote: The Mortgage Play is only a two--bar strategy.bar strategy.

A B


OpenOpen


A B

The Mortgage Short Play requires a great deal of faith on the part of the trader. Not only must the trader wholeheartedly believe in the accuracy of the strategy, he must have the stomach and the proper size bank account that can handle taking the large loss without much damage, if need be. Note how far away the stops, signified by the dotted red lines, are in Examples A – B. We encourage playing small.Big potential gains go hand in hand with big potential losses. ?

Buy at Open

1.1. Immediately buy at the market when Bar 2 opens above the high of Bar 1. Note: This signifies that now every hedge fund, trader, and investor who sold short during Bar 1 is now in negative territory. All shorts are thrown for a loop.

2.2. Place your stop just below the low of Bar 1. Note: This makes this tactic very high risk. If it fails, the loss is typically large, unless the range of Bar 1 is not that big and the gap up is not that large or severe. Many traders may want to opt for an arbitrary stop.

3.3. Use a trailing stop strategy until a)a)your objective has been met, b)b) the low of a reversal bar has been violated or c)c) a gap up occurs.


Bull Mortgage PlayBull Mortgage Play


Bull Mortgage PlayBull Mortgage Play

10 Days Later10 Days Later

BuyBuy

PBSPBS

Bearish Mortgage PlayBearish Mortgage Play


Bearish Mortgage PlayBearish Mortgage Play

10 Days Later10 Days LaterShortShort



Bull Gap SurpriseBull Gap Surprise

Bear Mortgage PlayBear Mortgage Play

Bear TrapBear Trap

10 Days Later10 Days Later

ShortShort

BuyBuy

SellSell



Bear TrapBear Trap

Bull TrapBull Trap


+BGS+BGS

--BGS & Bull TrapBGS & Bull Trap

Bull 20/20Bull 20/20



Bull Gap SurpriseBull Gap SurpriseBull Gap SurpriseBull Gap Surprise

Bull 20/20 PlaysBull 20/20 Plays

Failed Bear 20/20Failed Bear 20/20


Bull 20/20 PlayBull 20/20 Play



Gap n SnapGap n Snap

--BGSBGS

Bull TrapBull Trap

Pristine CSSPristine CSS

Big VolumeBig Volume

PBSPBS



Bearish Gap SurpriseBearish Gap Surprise


Bear TrapBear Trap



PBSPBS

PBSPBS

200 MA200 MA

Options Trading The Pristine WayOptions Trading The Pristine Way

With With






IntroductionIntroductionFour Styles of TradingFour Styles of Trading

Tools of the Options TraderTools of the Options TraderTwo Categories of Trading Two Categories of Trading

Options PricingOptions Pricing

Time Premium DecayTime Premium Decay

3 Determinants of Price3 Determinants of Price

The Greeks: Assessing RiskThe Greeks: Assessing Risk

Playing the NASDAQPlaying the NASDAQ

Pristine MethodPristine Method™™

When to be a BearWhen to be a Bear

Counting Your Way to ProfitsCounting Your Way to Profits

Determining Who is WinningDetermining Who is Winning

Pristine Trading CombinationsPristine Trading Combinations

When to be a BullWhen to be a Bull

Pristine OptionsPristine OptionsAdvantages & DisadvantagesAdvantages & Disadvantages

Buying/Selling CallsBuying/Selling Calls

Buying/Selling PutsBuying/Selling Puts

Combo StrategiesCombo Strategies


Part IPart I



Four Styles of Trading:Four Styles of Trading: CoreCore;; SwingSwing;; GuerrillaGuerrilla;; MicroMicro







Guerrilla TradingGuerrilla Trading™™


- Weekly Charts

- Daily Charts

- 60 Min. & 30 Min.


- Days to Weeks

- 5 Min. & 15-Min.

- Minutes to Hours

The Pristine PhilosophyThe Pristine Philosophy


The Pristine Trading Philosophy calls for a The Pristine Trading Philosophy calls for a trader to have trader to have 1)1) a a WealthWealth Building trade andBuilding trade and

2)2) an an IncomeIncome Producing trade on….Producing trade on….

At All Times!At All Times!

The Pristine The Pristine Options ToolsOptions Tools

Options ToolsOptions Tools

Options Trading ToolsOptions Trading Tools

Tools of the Options TradeTools of the Options TradeCharting Tools:Charting Tools: ColorColor--coded charts & Volume coded charts & Volume

displayed in Candlestick formdisplayed in Candlestick form

Technical Tools:Technical Tools: 2020--period ‘simple’ moving period ‘simple’ moving average; Bollinger Bands; CCI(5)average; Bollinger Bands; CCI(5)

Options Tools:Options Tools: DirectDirect--Access Executions; Options Access Executions; Options Pricing Screen; Options AnalyticsPricing Screen; Options Analytics

Chart Courtesy of Chart Courtesy of www.mastertrader.comwww.mastertrader.com

Candlestick Charts w/ VolumeCandlestick Charts w/ Volume

ColorColor--coded Volumecoded Volume


Bollinger Bands w/ 20MABollinger Bands w/ 20MA


Upper Bollinger BandUpper Bollinger BandOverbought AreaOverbought Area

Lower Bollinger BandLower Bollinger BandOversold AreaOversold Area


20ma20ma


+100+100

--100100


O/BO/B

O/SO/S

+100+100

--100100


O/BO/B

O/SO/S

+100+100

--100100


O/BO/B

O/SO/S

+100+100

--100100


O/BO/B

O/SO/S


Options Technical ToolsOptions Technical Tools




CCI (5)CCI (5)Bollinger BandsBollinger Bands

20MA20MAUpperUpper

LowerLower

Options Execution ToolsOptions Execution Tools

Options Execution Module Courtesy of Options Execution Module Courtesy of www.mastertrader.comwww.mastertrader.com

DirectDirect--Access Execution ModuleAccess Execution Module

Option TypeOption Type

SymbolsSymbols

Strike PricesStrike Prices

Level IILevel II4 pit exchanges4 pit exchangesand 1 electronicand 1 electronic

exchangeexchange

The Pristine The Pristine MethodMethod™™

Part IIPart II

An Introduction to:An Introduction to:


The Ongoing Market BattleThe Ongoing Market Battle



HighHigh

LowLow

CloseClose

OpenOpen

OpenOpen

CloseClose

HighHigh

LowLow

Real BodyReal BodyReal BodyReal Body









Pristine’s Key Buy ConceptsPristine’s Key Buy Concepts

When to be a BullWhen to be a Bull




Pristine’s Key Sell ConceptPristine’s Key Sell Concept

When to Be a BearWhen to Be a Bear









3 Green Bars3 Green Bars 3 Green Bars3 Green Bars







3 Red Bars3 Red Bars33--5 Red Bars5 Red Bars

3 Green Bars3 Green Bars 5 Red Bars5 Red Bars

4 Green4 GreenBarsBars

The Pristine The Pristine CombinationsCombinations

Pristine Trading CombosPristine Trading Combos



Bull & Bear TailsBull & Bear Tails


Topping Tail (TT)Topping Tail (TT) Bottoming Tail (BT)Bottoming Tail (BT)

3 or more green Bars3 or more green Bars++





TailsTails

4 Up Bars4 Up Barsw/ Tailw/ Tail 3 Up Bars3 Up Bars



3 Up Bars3 Up Bars

3 Down Bars3 Down Bars4 Up 4 Up BarsBars

3d3d


Bull & Bear COGBull & Bear COG

Changing of the Guard (COG)Changing of the Guard (COG)

Bear COGBear COG™™ Bull COGBull COG™™

3 or more green Bars3 or more green Bars++



Bull & Bear Changing of the GuardsBull & Bear Changing of the Guards



Bull COGBull COG™™Bull COGBull COG™™ Bull COGBull COG™™

TailsTails

4 Up Bars4 Up Barsw/ Tailw/ Tail 3 Up Bars3 Up Bars



3 Up Bars3 Up Bars


4 Up 4 Up BarsBars

3d3d

Pristine Trading SummaryPristine Trading Summary

Pristine Trading CombinationsPristine Trading Combinations3 to 5 Bar Buy/Sell Setups3 to 5 Bar Buy/Sell Setups

1) Topping/Bottoming Tails1) Topping/Bottoming Tails

2) Bull/Bear COG Setups2) Bull/Bear COG Setups

Can happen with:Can happen with:

and/orand/or

Powerful Powerful TradingTrading

CombinationsCombinations

These Combinations can happen:These Combinations can happen:

1) Outside the Upper/Lower Bollinger Band1) Outside the Upper/Lower Bollinger Band

2) Overbought/Oversold CCI(5) Readings 2) Overbought/Oversold CCI(5) Readings

withwith LocationLocation





3 Green Bars w/ COG3 Green Bars w/ COG


3 Green Bars3 Green Barsw/ COGw/ COG

Pristine OptionsPristine Options

Part IIIPart III


What is an Option?What is an Option?

2001 Ferrari 360 Modena Spider2001 Ferrari 360 Modena Spider

You have just traded a You have just traded a commoditycommodity!!

Suppose you’re in the market for this wonderful 2001 Suppose you’re in the market for this wonderful 2001 Ferrari 360 Modena SpiderFerrari 360 Modena SpiderYou find a dealer with one in stockYou find a dealer with one in stock

You wire transfer $275,000You wire transfer $275,000

The dealer delivers the car to youThe dealer delivers the car to you



You have just traded a You have just traded a futures contractfutures contract!!

Suppose you want this 2001 Ferrari 360 Modena Spider, Suppose you want this 2001 Ferrari 360 Modena Spider, but you prefer to purchase it four weeks from now, when but you prefer to purchase it four weeks from now, when you get your yearyou get your year--end bonusend bonus

You enter into an agreement with the dealer to purchase the You enter into an agreement with the dealer to purchase the car for $275,000 1 month from now car for $275,000 1 month from now



You have just traded an You have just traded an options contractoptions contract!!

You like the 360 this dealer has, You like the 360 this dealer has, butbut you ask the dealer to put the car on you ask the dealer to put the car on hold for two weeks in order to shop around. hold for two weeks in order to shop around.

This will deny the dealer the ability to sell the car for two weThis will deny the dealer the ability to sell the car for two weekseks

You and the dealer agree that for a nonYou and the dealer agree that for a non--refundable fee of $2,000 the car will refundable fee of $2,000 the car will be held for two weeks, and that any time during that period you be held for two weeks, and that any time during that period you may may purchase the car for $275,000.purchase the car for $275,000.

You are under no obligation to buy the car.You are under no obligation to buy the car.

Options AdvantagesOptions Advantages

Limited RiskLimited RiskCalculable RiskCalculable Risk

Higher Levels of LeverageHigher Levels of Leverage

Higher Potential ROIHigher Potential ROI

TriTri--directional vs. Bidirectional vs. Bi--directionaldirectional

Versatile StrategiesVersatile Strategies

No UpNo Up--tick Rule Requiredtick Rule Required

Conservative or SpeculativeConservative or Speculative

Less Accuracy on Entries NeededLess Accuracy on Entries Needed

Guaranteed by Options Clearing CorporationGuaranteed by Options Clearing Corporation

Options DisadvantagesOptions Disadvantages

Less LiquidityLess Liquidity

Wide Bid/Ask SpreadsWide Bid/Ask Spreads

Slippage in Fast MarketsSlippage in Fast Markets

Not all brokers allow options tradingNot all brokers allow options trading

Delayed OpeningsDelayed Openings

Can lose despite being Can lose despite being rightright about direction of stockabout direction of stock

Time Depleting AssetTime Depleting Asset

Higher Levels of LeverageHigher Levels of Leverage

Relatively Higher CommissionsRelatively Higher Commissions

Two Types of Options ContractsTwo Types of Options Contracts

Call OptionsCall Options

Put OptionsPut Options

This type of contract gives the holder (This type of contract gives the holder (buyerbuyer) the) theright to buy (“right to buy (“call awaycall away”) the underlying stock”) the underlying stockfrom the seller (from the seller (writerwriter) at a specific price () at a specific price (strikestrike),),but only for a specified amount of time (but only for a specified amount of time (expiryexpiry))

This type of contract gives the holder (This type of contract gives the holder (buyerbuyer) the) theright to sell (“right to sell (“putput”) the underlying stock to the seller”) the underlying stock to the seller((writerwriter) at a specific price () at a specific price (strikestrike), but only for a ), but only for a specified amount of time (specified amount of time (expiryexpiry))

Buyers (Buyers (holdersholders) of calls are bullish) of calls are bullish

Sellers (Sellers (writerswriters) of calls are bearish) of calls are bearish

Sellers (Sellers (writerswriters) of puts are bullish) of puts are bullish

Buyers (Buyers (holdersholders) of puts are bearish) of puts are bearish

Calls in Everyday LifeCalls in Everyday Life

Suppose you want to buy this quaintSuppose you want to buy this quaint$25 million house, but don’t know if your$25 million house, but don’t know if yourtax advisors will approve of the purchase. tax advisors will approve of the purchase.

So, to secure the property, you enter intoSo, to secure the property, you enter intoan agreement (an agreement (call optioncall option) with the owner) with the ownerby paying $10,000 (by paying $10,000 (premiumpremium), which gives), which givesyou the right to buy the mansion for $25 you the right to buy the mansion for $25 million (strike price) anytime during themillion (strike price) anytime during thenext 45 days (next 45 days (expiryexpiry), minus your $10,000. ), minus your $10,000.

The $10,000 (The $10,000 (premiumpremium) locks in the $25 million price.) locks in the $25 million price.If you choose not to buy, the owner keeps the full $10,000.If you choose not to buy, the owner keeps the full $10,000.If someone subsequently offers the owner $27 million, you canIf someone subsequently offers the owner $27 million, you canbuy from the owner at $25 mil and immediately sell for $27 mil,buy from the owner at $25 mil and immediately sell for $27 mil,pocketing a quick $2 million for yourself. pocketing a quick $2 million for yourself.

Puts In Everyday LifePuts In Everyday Life

Buying a put is like buying an insurance policy.Buying a put is like buying an insurance policy.

The premium paid guarantees that if your car The premium paid guarantees that if your car is stolen, within the agreed upon time frame is stolen, within the agreed upon time frame (expiry),(expiry), you will get the full insured value you will get the full insured value (strike price).(strike price).

Insurance companies are like option sellers, receivingInsurance companies are like option sellers, receivingPremium for assuming obligations.Premium for assuming obligations.

Put buyers pay a fee Put buyers pay a fee (premium)(premium) to to transfer risktransfer risk to put sellers.to put sellers.

Common Characteristics of Puts & CallsCommon Characteristics of Puts & Calls

The buyer purchases a right from the seller.The buyer purchases a right from the seller.

The seller incurs an obligation.The seller incurs an obligation.

A fee or “premium” is exchanged.A fee or “premium” is exchanged.

The contract is for a limited time.The contract is for a limited time.

The buyer & seller have opposite profit/loss positions.The buyer & seller have opposite profit/loss positions.

The buyer & seller have opposite riskThe buyer & seller have opposite risk--return potentials.return potentials.

HedgeHedgevs.vs.

SpeculationSpeculation

Owning a CallOwning a Call

XYZXYZ is trading at $50.is trading at $50.

You have been given the right toYou have been given the right tobuy buy XYZXYZ at $50, free of charge,at $50, free of charge,for the next 30 days.for the next 30 days.

If If XYZXYZ stays at $50 or declines,stays at $50 or declines,you have no use for this right.you have no use for this right.

If If XYZXYZ rises to $55, you canrises to $55, you cando either of the following:do either of the following:

Buy Buy XYZXYZ for $50, then sell for a $5 profitfor $50, then sell for a $5 profit

Buy Buy XYZXYZ for $50 and holdfor $50 and holdoror

Tip:Tip: Your original right to buyYour original right to buy XYZXYZ is known as a is known as a Call OptionCall Option, or simply a ‘, or simply a ‘CallCall.’.’

+10+10

+5+5

XYZXYZ4545 5050 5555 6060

Profit/Loss GraphProfit/Loss GraphXYZXYZ Call OwnerCall Owner

Sell the right for a $5 profitSell the right for a $5 profitoror

Offering a CallOffering a Call

He has given you the right to buy He has given you the right to buy XYZXYZat $50, free of charge, for the next 30 days.at $50, free of charge, for the next 30 days.

If If XYZXYZ stays at $50 or declines,stays at $50 or declines,he wins and keeps he wins and keeps XYZ.XYZ.

If If XYZXYZ rises to $55, he loses (gives up)rises to $55, he loses (gives up)the $5 gain to you. the $5 gain to you.

He is obligated to sell He is obligated to sell XYZXYZ to youto youfor $50, even though for $50, even though XYZXYZ is at $55.is at $55.

If he doesn’t own If he doesn’t own XYZXYZ, he will have to, he will have tobuy buy XYZXYZ at $55 and deliver it to you at $50.at $55 and deliver it to you at $50.

Tip:Tip: As the owner of the call, your potential As the owner of the call, your potential gaingain is exactly his potential is exactly his potential lossloss..

By giving you the By giving you the rightright to buy, he assumesto buy, he assumesthe the obligationobligation to sell. to sell.

--55

--1010

XYZXYZ 4545 5050 5555 6060

Profit/Loss GraphProfit/Loss GraphXYZXYZ Call SellerCall Seller

Example of Call PurchaseExample of Call Purchase


Major IntermediateMajor Intermediate--term Price Supportterm Price Support

1) QCOM down 1) QCOM down 8 red bars8 red bars in a rowin a row

3) QCOM puts in a 3) QCOM puts in a Bull COGBull COG™™

2) QCOM punctures lower band2) QCOM punctures lower band

4) QCOM on prior price support4) QCOM on prior price support

TargetTarget

The Pristine Options Trader looks to buy QCOM Calls!!The Pristine Options Trader looks to buy QCOM Calls!!Action:Action:

Choosing Your StrikeChoosing Your Strike

ATAT--THETHE--MONEY (ATM)MONEY (ATM) options have a strike price at or options have a strike price at or near the current price of the stock near the current price of the stock (QCOM $50).(QCOM $50).

ININ--THETHE--MONEY (ITM)MONEY (ITM) options have Intrinsic Value. For Call options have Intrinsic Value. For Call options, ITM options have strike prices below the current price options, ITM options have strike prices below the current price of of the stock. For Put options, ITM options have strike prices abovthe stock. For Put options, ITM options have strike prices above e the current price of the stock the current price of the stock (QCOM $45 Call).(QCOM $45 Call).

OUTOUT--OFOF--THETHE--MONEY (OTM)MONEY (OTM) options have no Intrinsic Value. options have no Intrinsic Value. All the value of the option is time value. For All the value of the option is time value. For callcall options, OTM options, OTM options have strike prices above the current price of the stock.options have strike prices above the current price of the stock. For For PutPut options, OTM options have strike prices below the current options, OTM options have strike prices below the current price of the stock. price of the stock. (QCOM $55 Call).(QCOM $55 Call).

Note:Note: The strike you select depends on your risk tolerance and on howThe strike you select depends on your risk tolerance and on how bullish/bearish you are.bullish/bearish you are.

Buying a QCOM (ATM) CallBuying a QCOM (ATM) Call

--3.003.00

Break Even (BE) = $53Break Even (BE) = $53

00

11

22

33

44

--11

--22

--33

--44

5252515150504747 4848 4949 5353 5454 5555 5656 5757

--1.001.00••

--2.002.00••

+1.00+1.00••

+3.00+3.00••+2.00+2.00••

+4.00+4.00••

••

The The QCOM QCOM SeptSept 50 Call costs you a $3 premium.50 Call costs you a $3 premium.

To cover cost, To cover cost, QCOMQCOM must rise to $53.must rise to $53.

Your Your Maximum LossMaximum Loss is $3 cost of call.is $3 cost of call.

You profit above $53, which is You profit above $53, which is unlimited.unlimited.

You lose part of the $3 if You lose part of the $3 if QCOMQCOM remains remains between $50 (between $50 (strikestrike) and $53 () and $53 (BEBE).).

Assumes at ExpirationAssumes at ExpirationAssumes 20 days leftAssumes 20 days left

Selling a QCOM (ATM) CallSelling a QCOM (ATM) Call

+3.00+3.00

00

11

22

33

44

--11

--22

--33

--44

5252515150504747 4848 4949 5353 5454 5555 5656 5757--1.001.00••

--2.002.00••

+1.00+1.00••

+2.00+2.00••••

The Seller ofThe Seller of thethe QCOM QCOM Sept 50 Call receives your $3 premium.Sept 50 Call receives your $3 premium.

Call SellerCall Seller profitsprofits if if QCOMQCOM staysstaysbelow $53 (below $53 (BEBE). ). Seller loses if Seller loses if QCOMQCOM rises above $53,rises above $53,which is which is unlimited.unlimited.

Seller keeps Seller keeps Maximum GainMaximum Gain ($3) if ($3) if QCOMQCOM remains at $50 (strike) or below.remains at $50 (strike) or below.

Seller keeps part of the $3 if Seller keeps part of the $3 if QCOMQCOM remains remains between $50 (between $50 (strikestrike) and $53 () and $53 (BEBE).).


--3.003.00••--4.004.00••

Summarizing Call OptionsSummarizing Call Options

A call is used to capitalize on upside market movement w/ leveraA call is used to capitalize on upside market movement w/ leverage.ge.

A call serves as an alternative to buying the underlying stock tA call serves as an alternative to buying the underlying stock to o limit downside exposure. limit downside exposure.

The call seller receives The call seller receives premiumpremium and assumes the and assumes the obligationobligation to sell to sell the underlying (the underlying (stockstock) at the call buyer’s discretion.) at the call buyer’s discretion.

The call contract is for a limited time period.The call contract is for a limited time period.

The call buyer pays a The call buyer pays a premiumpremium for the for the rightright, but , but not the obligationnot the obligation, , to buy the underlying asset (to buy the underlying asset (stockstock).).

A call is the A call is the rightright to buy the underlying asset (to buy the underlying asset (stockstock) at a specified) at a specifiedprice (price (strikestrike) for a specified period of time () for a specified period of time (expiryexpiry).).

SummarySummary

Buyers have unlimited profit; sellers have maximum gain.Buyers have unlimited profit; sellers have maximum gain.

Example of Put PurchaseExample of Put Purchase


1) INTC up 1) INTC up 3 green bars3 green bars in a rowin a row

2) INTC punctures upper band2) INTC punctures upper band

3) INTC puts in a red bar 3) INTC puts in a red bar

4) CCI(5) is oversold 4) CCI(5) is oversold

The Pristine Options Trader looks to buy INTC PutsThe Pristine Options Trader looks to buy INTC PutsAction:Action:

TargetTarget

Buying an INTC (ATM) PutBuying an INTC (ATM) Put

00

11

22

33

44

--11

--22

--33

--44

3131303029292626 2727 2828 3232 3333 3434 3535

--1.501.50 ••--2.002.00 ••

+1.00+1.00••

+3.00+3.00••+2.00+2.00••

••

INTC INTC AugAug 32.50 Put costs you $2.50.32.50 Put costs you $2.50.

To cover cost, To cover cost, INTCINTC declines to $30 (declines to $30 (BEBE).).

Your Your Maximum LossMaximum Loss is the $2.75 cost of put.is the $2.75 cost of put.

You profit below $30, which is not You profit below $30, which is not unlimitedunlimited..

You lose part of the $2.75 if You lose part of the $2.75 if INTCINTC remains remains between $32.50 (between $32.50 (strikestrike) and $30 () and $30 (BEBE).).

--2.502.50Break Even (BE) = $30Break Even (BE) = $30

Selling an INTC (ATM) PutSelling an INTC (ATM) Put

00

11

22

33

44

--11

--22

--33

--44

3131303029292626 2727 2828 3232 3333 3434 3535

+1.50+1.50••+1.00+1.00••

--1.001.00••--2.002.00••

•• +2.50+2.50


--3.003.00••

The Seller ofThe Seller of thethe INTC INTC Aug 32.50 Put receives your $2.50 premium.Aug 32.50 Put receives your $2.50 premium.

Put SellerPut Seller profitsprofits if if INTCINTC stays above $30 (stays above $30 (BEBE). ).

Seller Seller losesloses if if INTCINTC declines below $30,declines below $30,which is not which is not unlimitedunlimited..

Seller keeps Seller keeps Maximum GainMaximum Gain ($2.50) if ($2.50) if INTCINTC remains at $32.50 or above.remains at $32.50 or above.

Seller keeps part of the $2.50 if Seller keeps part of the $2.50 if INTCINTC remains remains between $32.50 (between $32.50 (strikestrike) and $30 () and $30 (BEBE).).

Summarizing Put OptionsSummarizing Put Options

A put is used to capitalize on downside market movement.A put is used to capitalize on downside market movement.

A put serves as a safer alternative to selling (shorting) the A put serves as a safer alternative to selling (shorting) the underlying stock, as it limits the potential loss. underlying stock, as it limits the potential loss.

The put seller has the The put seller has the obligationobligation to buy the underlying (stock) at to buy the underlying (stock) at the put buyer’s discretion.the put buyer’s discretion.

The put contract is for a limited time period.The put contract is for a limited time period.

The put buyer has the The put buyer has the rightright, but , but not the obligationnot the obligation, to sell the, to sell theunderlying asset (underlying asset (stockstock).).

A put is the A put is the rightright to sell the underlying asset (to sell the underlying asset (stockstock) at a specified) at a specifiedprice (price (strikestrike) for a specified period of time () for a specified period of time (expiryexpiry).).

SummarySummary

Option MatrixOption MatrixCALLS

PUTS

Pay a premium for right to buy stock

Buy to open (long)

Owner/holder of asset

Max gain = unlimited

Max risk = premium paid

Buyers (Bullish) Sellers (Bearish/Neutral)

Receive premium for the obligation to sell stock

Sell to open (short)

Max gain = premium received

Max risk = unlimited unless covered

Buyers (Bearish)Pay a premium for right to sell stock

Buy to open (long)

Owner/holder of asset

Max gain = strike price – premium paid

Max risk = premium paid

Sellers (Bullish/Neutral)Receive premium for the obligation to buy

Sell to open (short)

Max gain = premium received

Max risk = strike price – premium received

Options PricingOptions Pricing

Part IVPart IV


3 Determinates of Price3 Determinates of Price

A Change in the A Change in the UnderlyingUnderlying

The Passage of The Passage of TimeTime

A Change in A Change in VolatilityVolatility

Options theoryOptions theory is able to is able to calculate the exposure to calculate the exposure to these three variables.these three variables.

The terms that apply to The terms that apply to the calculations are called the calculations are called the the GreeksGreeks..

The Four GreeksThe Four Greeks

DeltaDelta GammaGamma

ThetaTheta VegaVega

Time Premium DecayTime Premium Decay

1144 002233Number of Weeks to MaturityNumber of Weeks to Maturity

Opt

ion

Val

ueO

ptio

n V

alue

Time premium will decay as time passes.Time premium will decay as time passes.

Options are time depleting assets.Options are time depleting assets.

The closer the option is to maturity,The closer the option is to maturity,the more rapid the time premium decay.the more rapid the time premium decay.

Time premium is greatest forTime premium is greatest foratat--thethe--money options.money options.

Deep in(out)Deep in(out)--of the moneyof the moneyoptions have small premiums.options have small premiums.

Decay accelerates rapidly duringDecay accelerates rapidly duringthe last 15 days. the last 15 days.

The Greeks: DeltaThe Greeks: Delta

Delta:Delta: It is the amount that an option changes with respect to a small It is the amount that an option changes with respect to a small change change in the underlying.in the underlying.

Deep, inDeep, in--thethe--moneymoney options will often change one for one with the options will often change one for one with the underlying. In this case, the option’s underlying. In this case, the option’s deltadelta would be would be 1.001.00. .

AtAt--thethe--money options money options generallygenerally change price at half the rate, and change price at half the rate, and therefore have therefore have deltasdeltas of of .50.50..

Options so far Options so far outout--ofof--thethe--moneymoney are often considered worthless, and are often considered worthless, and therefore have deltas close to therefore have deltas close to 0.000.00. This means the option will not . This means the option will not move in price, no matter what the underlying does.move in price, no matter what the underlying does.

Pristine TipPristine Tip:: Think of delta as the probability of an option expiring Think of delta as the probability of an option expiring inin--thethe--money.money.

If an option has a delta of .10, it has a 10% chance of If an option has a delta of .10, it has a 10% chance of expiring inexpiring in--thethe--money.money.

2 strikes in the money = 2 strikes in the money = high Deltahigh Delta..

Greeks: Gamma, Theta & VegaGreeks: Gamma, Theta & Vega

Gamma:Gamma: Quantifies the rate of change of the delta with respect to a chQuantifies the rate of change of the delta with respect to a change in ange in the underlying. the underlying.

Measures how quickly or slowly delta responds to a change in theMeasures how quickly or slowly delta responds to a change in theunderlying.underlying.

It is the amount that the option decays in one (1) day.It is the amount that the option decays in one (1) day.

A writer (seller) receives income from time decay and therefore A writer (seller) receives income from time decay and therefore has has ‘‘positive theta.positive theta.’ A buyer incurs an expense from time decay and ’ A buyer incurs an expense from time decay and therefore has ‘therefore has ‘negative theta.negative theta.’’

Theta:Theta:

Vega:Vega: It is the amount that an option changes if the ‘It is the amount that an option changes if the ‘implied volatility’implied volatility’changes by one percentage (1%) point.changes by one percentage (1%) point.

A long options position profits from an A long options position profits from an increaseincrease in implied volatility, in implied volatility, and therefore has ‘and therefore has ‘positive vega.positive vega.’ A short options position profits from ’ A short options position profits from a decrease in implied volatility, and therefore has ‘a decrease in implied volatility, and therefore has ‘negative theta.negative theta.’’

Playing the NASDAQ w/ OptionsPlaying the NASDAQ w/ Options


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Options Trader:Options Trader:Buys Puts; Sells Calls!Buys Puts; Sells Calls!

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Puts; Calls!Puts; Calls!


Options Trader: Options Trader: Buys Calls; Sells Puts!Buys Calls; Sells Puts!


Calls; Puts!Calls; Puts!

Swing Trading TacticsSwing Trading Tactics

With With






IntroductionIntroductionThe 6 Major Time FramesThe 6 Major Time Frames

Understanding CandlesticksUnderstanding CandlesticksThe 4 Trading StylesThe 4 Trading Styles


The 3 Primary TrendsThe 3 Primary Trends

Combining Building BlocksCombining Building Blocks

The Market’s Basic UnitThe Market’s Basic Unit

The Only Way to Win or LoseThe Only Way to Win or Lose

Anatomy of Up & Anatomy of Up & Down TrendsDown Trends

Dissecting the Major Up TrendDissecting the Major Up Trend

Dissecting the Major Down TrendDissecting the Major Down Trend

Pristine’s Master Pristine’s Master Buy & Sell SetBuy & Sell Set--upsupsThe Buy SetThe Buy Set--up & Actionup & Action

The Sell SetThe Sell Set--up & Actionup & Action

Pristine Chart ExamplesPristine Chart Examples

Trading DisclaimerTrading DisclaimerIt should not be assumed that the methods, techniques, or indicators presented in this book will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples in this book are for educational purposes only. This is not a solicitation of any order to buy or sell.

“HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES IN THIS BOOK HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS WE STATE MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.”

The authors and publisher assume no responsibilities for actions taken by readers. The authors and publisher are not providing investment advice. The authors and publisher do not make any claims, promises, or guarantees that any suggestions, systems, trading strategies, or information will result in a profit, loss, or any other desired result. All readers and seminar attendees assume all risk, including but not limited to the risk of trading losses. Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options (www.cboe.com).

Swing Trading can result in large losses and may not be an activSwing Trading can result in large losses and may not be an activity suitable for everyone.ity suitable for everyone.

Copyright © 2001 by Pristine Capital Holdings, Inc. All rights reserved. Printed in the U.S. of America. Except aspermitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without prior written permission of the publisher.


Part IPart I


There areThere are six major times framessix major times frames available to available to market players, all of which can be grouped intomarket players, all of which can be grouped into

three broader categoriesthree broader categories::

Long term; Long term; Intermediate term; and Intermediate term; and

Short term.Short term.

Used for academic purposes and cyclical analysisUsed for academic purposes and cyclical analysisLong termLong term

Yearly Charts (each bar = 240 trading days)Yearly Charts (each bar = 240 trading days)Used for academic studies and testsUsed for academic studies and tests

Monthly Charts (each bar = 20 trading days)Monthly Charts (each bar = 20 trading days)Used by academics and longUsed by academics and long--term investorsterm investors


Monthly ChartMonthly Chart


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Used for swing trading & core tradingIntermediate termIntermediate term

Weekly Charts (each bar = 5 trading days)Weekly Charts (each bar = 5 trading days)Visited occasionally by swing traders and also used by some long-term investors. We encourage our traders to

visit weekly charts once per week

Daily Charts (each bar = 1 full trading day)Daily Charts (each bar = 1 full trading day)This is the domain of the swing trader. It is where the swing trader will spend 90% of his time and get nearly

95% of his entry and exit signals


Weekly ChartWeekly Chart


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Daily ChartDaily Chart

Daily Chart of INTCDaily Chart of INTCd20mad20ma

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Used for Micro-TradingShort termShort term

Hourly Charts (each bar = 60 minutes)Hourly Charts (each bar = 60 minutes)Visited by day traders at times to eliminate noise and to gain

a clearer perspective of the overall trend. A great time frame for 2-day plays

IntraIntra--day (15day (15-- & 5& 5--minute trading bars)minute trading bars)This is where the day trader and the scalper live their entire

lives. Nearly all entry and exit points are derived in these time frames


Hourly ChartHourly Chart

Hourly Chart of INTCHourly Chart of INTC

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55-- & 15& 15--Min ChartsMin Charts

55--Min Chart of INTCMin Chart of INTC 1515--Min Chart of INTCMin Chart of INTC

200ma200ma

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200ma200ma

20ma20ma

Pristine TipPristine TipFor our purposes, there are two types of trading: Wealth Wealth TradingTrading and Income TradingIncome Trading. The wealth trader, while making occasional visits to monthly charts, will use the weekly and daily charts for all of his trading signals. The income trader, while occasionally visiting the daily chart, willuse the 2, 5, and 15-min time frames for most of his trading signals. Note that there is always an effort to combine two or more times frames. The market player who uses more than The market player who uses more than one time frame in his analysis will experience a higher degree one time frame in his analysis will experience a higher degree of trading accuracyof trading accuracy. Remember this, as it is the most important key to understanding why nearly perfect setups in one time frame can and do fail at times.

Combining Time FramesCombining Time Frames

There are four major stylesfour major styles of trading available to market players,

all of which can be grouped intotwo categoriestwo categories:

Wealth Building StyleWealth Building StyleIncome Producing StyleIncome Producing Style


1. Core Trading (weeks to months).. Core Trading (weeks to months). This wealth-building style of trading attempts to capture major trends in the market and/or underlying stock. Most traders will use this style for longer term accounts such as IRAs, KEOGHs and other less time sensitive accounts. Weekly charts are used for Core Trading.

2. Swing Trading (2 to 10 days).2. Swing Trading (2 to 10 days). This wealth-building style of trading is designed to capture short-term swings in an on-going trend, while side stepping the brief countertrend moves. It attempts to take advantage of a very overlooked niche, one that is too short for large institutions and too long for day traders. Daily charts are used for Swing Trading.

Note: PristinePristine’’s trading philosophy calls for having at least one of the two s trading philosophy calls for having at least one of the two wealthwealth--building trades always at work. Some of the countrybuilding trades always at work. Some of the country’’s top traders s top traders have amassed very large sums of money utilizing one or both of thave amassed very large sums of money utilizing one or both of these hese styles in their trading programs.styles in their trading programs.

Wealth BuildingWealth Building


1. 1. Guerilla Trading (1 to 2 days).Guerilla Trading (1 to 2 days). This income producing style utilizes a sniper’s hit and run approach. It looks to buy a stock on Tuesday, for instance, and sell it on Wednesday. Conversely, it calls for shorting a stock on one day, only to cover it the next day. Daily and Hourly charts are used for Daily and Hourly charts are used for Guerilla Trading.Guerilla Trading.

2. 2. MicroMicro--Trading (seconds to hours).Trading (seconds to hours). This income producing style is what most people refer to as day trading. Some refer to it as scalping, and it serves as the foundation for anyone who wants to make a living from the markets. 55-- and 15and 15--minute charts are used for Microminute charts are used for Micro--trading.trading.

Note:Note: PristinePristine’’s philosophy calls for specializing in both Guerilla and s philosophy calls for specializing in both Guerilla and Micro Trading, and always having one or both of the styles at woMicro Trading, and always having one or both of the styles at work. rk. These are the styles on which most professional traders focus.These are the styles on which most professional traders focus.

Income ProducingIncome Producing


Core Trading ChartCore Trading Chart

Core Trend

Core Trend

= Short= Short

= Cover= Cover


Sell

Sell

Sell

Buy

Buy

Buy

Buy

Swing Trader buys near the declining 20maSwing Trader buys near the declining 20maAnd sells away from the 20ma.And sells away from the 20ma.

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Swing Trading ToolsSwing Trading Tools

Tools of the Swing TradeTools of the Swing Trade

Charting Tools:Charting Tools: Daily charts displayed in Daily charts displayed in Japanese Candlestick form.Japanese Candlestick form.

Technical Tools:Technical Tools: Color coded volume; 20 & 40 Color coded volume; 20 & 40 period ‘simple’ moving averages,period ‘simple’ moving averages,and a 5 period Commodity and a 5 period Commodity Channel Index (CCIChannel Index (CCI--5).5).


+100+100

--100100


O/BO/B

O/SO/S

+100+100

--100100


O/BO/B

O/SO/S

+100+100

--100100


O/BO/B

O/SO/S

+100+100

--100100


O/BO/B

O/SO/S


Daily Chart w/ Volume & CCI(5)Daily Chart w/ Volume & CCI(5)

Color coded VolumeColor coded Volume CCICCI--55


CommentaryCommentaryThe main difference between Japanese Candlestick analysis and Western Bar chart analysis is that the Japanese place the highest importance on the relationship betweeJapanese place the highest importance on the relationship between n the the openopen and and closeclose of the same dayof the same day, while the , while the Westerners place the importance on the Westerners place the importance on the close as it relates to the prior periodclose as it relates to the prior period’’s closes close. Note:Note: As long as the underlying stock closes higher than the prior day’s close, Western thought says it’s positive; however, according to the Japanese view, this is not necessarily the case. If on an up day, the stock closes below its open, the Japanese would regard it as negative. ExampleExample: Monday’s close = $39. Tuesday’s open = $40.75. Tuesday’s close = $39.75. The Western view: “Positive action because the stock was up ¾ on the day.” Japanese view: “Negative action because the stock closed sharply below its opening price of $40.75.”

Important: Important: We regard the latter view as more accurate and useful for traderWe regard the latter view as more accurate and useful for traders.s. This is why we exclusively use candlestick bar charts in our trading analysis in all time frames.

Understanding CandlesticksUnderstanding Candlesticks


The Battle with CandlesThe Battle with Candles



HighHigh

LowLow

CloseClose

OpenOpen

OpenOpen

CloseClose

HighHigh

LowLow









3 to 5 Bar Rallies 3 to 5 Bar Rallies –– Think SellThink Sell

Pictures of GreedPictures of Greed





3 to 5 Bar Declines 3 to 5 Bar Declines –– Think SellThink Sell

Pictures of PainPictures of Pain



High & CloseHigh & Close

HighHigh

High & OpenHigh & Open

HighHighHigh

High

Low & CloseLow & Close

LowLow

Low & OpenLow & Open

LowLow

LowLow

Open &Close

Open &Close

OpenOpen

Close

Reversal Bars

Candlestick SummaryCandlestick Summary


Part IIPart II

Building Blocks to Trading MasteryBuilding Blocks to Trading Mastery

IntroductionIntroductionIn this section, we will reveal a few simple keys to understanding how the market works. The following concepts form the The following concepts form the cornerstone of any and every sound trading technique or tacticcornerstone of any and every sound trading technique or tactic. After gaining a clear understanding of these building blocks, the trader will never again find himself confused and not knowing what to do. In fact, once these powerful but simple concepts aremastered and understood, the trader will rarely find himself on the wrong side of the market. And over 65% of all trading losses can over 65% of all trading losses can be attributed to being on the wrong side of the marketbe attributed to being on the wrong side of the market..



• This is the only movement a stock can make. There is no other motion possible.

• The entire life of a stock is comprised of this cycle repeated time and time again.

• This cycle forms the basis for predicting price movement.

• The Basic Unit helps the trader know the current status as well as what’s next.

• The key to trading successfully is knowing where you are in the cycle.

• There is only one way to play this cycle successfully, and only one way to lose.



Stage 3Stage 3

Buy Area Sell Area


• In Stage 2, the Pristine Trader focuses on buying.

• In Stage 4, the Pristine Trader focuses on shorting.

• In Stage 1 & 3, the Pristine Trader can focus on both, buying and shorting.

• Stage 1 to Stage 1 can span over decades (macro), or minutes (micro).

• This Cycle is made up of 3 primary trends.



Stage 3Stage 3

Buy Area Sell Area


The Only Way To Win or LoseThe Only Way To Win or Lose

CorrectBuy Area

CorrectBuy Area

CorrectSell Area

CorrectSell Area

Faulty Sell Area

Faulty Sell Area

Faulty Buy Area

Faulty Buy Area

The Only Way To WinThe Only Way To Win The Only Way To LoseThe Only Way To Lose

Traders who win consistently have simply learned to play the stock

cycle this way

Traders who lose are unconsciously playing the stock cycle in this

faulty manner

T H E F U L L C Y C L E

T h e S i m p l e A r t O f T r a d i n g ® P a r t I B y O l i v e r L . V e l e z & G r e g C a p r a

S T A G E O N E

S T A G E T W O

S T A G E T H R E E

S T A G E F O U R

The Full Cycle


The Full Cycle


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Stage 1Stage 1

Stage 2Stage 2

Stage 3Stage 3

Stage 4Stage 4



The Full Cycle


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Stage 2Stage 2

Stage 3Stage 3

Stage 4Stage 4



The Full Cycle


Stage 1Stage 1

Stage 2Stage 2

Stage 3Stage 3

Stage 4Stage 4

Novice GapNovice Gap

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There is only one cycle in existence. Stocks and/or the market can do nothing else but comply with this cycle. No other movement or motion is possibleNo other movement or motion is possible. This is the first major key to predicting stock market movement. Remember it!

This cycle is made up of four (4) distinct stages, which in turnThis cycle is made up of four (4) distinct stages, which in turn are driven by four are driven by four (4) distinct emotions or psychological states. (4) distinct emotions or psychological states. The 4 stages must, and always do, The 4 stages must, and always do, occur in the same sequenceoccur in the same sequence. This is also an important key to price prediction.. This is also an important key to price prediction.

Stage 1Stage 1, the bottoming period, is driven by Uncertainty/AmbivalenceUncertainty/Ambivalence. This is the stage during which traders are unsure and/or indifferent. The interest level is low.

Stage 2Stage 2, the bullish period, is driven by GreedGreed. This is the stage during which traders will make the most money. The mindset that dominates Stage 2 is one that wants to be in the game, at any cost. Most participants will make money during Most participants will make money during Stage 2, except those who come in too late and/or those who stayStage 2, except those who come in too late and/or those who stay too longtoo long.

Stage 3Stage 3,, the topping period, is also driven by Uncertainty/AmbivalenceUncertainty/Ambivalence, just as in Stage 1. During this stage, sentiment begins to change, as a growing a growing number of players begin to doubt the stocknumber of players begin to doubt the stock’’s (markets (market’’s) ability to continue s) ability to continue upwardupward. . Other continue to think there will be no end to the bullishness.

Stage 4Stage 4,, the bearish period, is driven entirely by FearFear, which typically escalates or crescendos into a climax. Most players will lose money during this time. Those who have held on too long begin to exit in an attempt to keep some of their gains. Those who have entered late typically exit late; but they exit all at once, which in turn creates the climactic part of the decline.Once this last batch of traders exits, the worst is overOnce this last batch of traders exits, the worst is over..

Important:Important: There is only one way to lose. If a trader thoroughly There is only one way to lose. If a trader thoroughly understands this one way to lose, he will be more prone to avoidunderstands this one way to lose, he will be more prone to avoid it. it.



A stock, or the market, can only be in one of the 4 stages at anA stock, or the market, can only be in one of the 4 stages at any given time.y given time.

Identifying which stage a stock is in is vital to successful traIdentifying which stage a stock is in is vital to successful trading. It helps to ding. It helps to reduce losing trades, and adds a quality to onereduce losing trades, and adds a quality to one’’s decision making that is very s decision making that is very high.high.

The astute trader will make most of his profits during Stage 2 aThe astute trader will make most of his profits during Stage 2 and Stage 4.nd Stage 4.

Keep in mind that each stage calls for a specific trading strateKeep in mind that each stage calls for a specific trading strategygy..

The successful market player has a collection of approaches for The successful market player has a collection of approaches for each stage.each stage.

Important Note:Important Note: The successful trader has tools designed The successful trader has tools designed specifically for specifically for Stage 2Stage 2, Stage 1 & 3, and , Stage 1 & 3, and Stage 4Stage 4


The 4 stages are divided by (or linked by) 4 transitional phasesThe 4 stages are divided by (or linked by) 4 transitional phases. .

Transitional phases tend to be the most difficult periods or poiTransitional phases tend to be the most difficult periods or points to trade. nts to trade. They are whippy, choppy and very volatile.They are whippy, choppy and very volatile.

All a trader needs to do is learn how to handle himself in each All a trader needs to do is learn how to handle himself in each of the 4 of the 4 stages.stages.

The highest degree of market mastery will be obtained when the tThe highest degree of market mastery will be obtained when the trader rader learns how to handle the transitional phases (a, b, c & d), as wlearns how to handle the transitional phases (a, b, c & d), as well as the 4 ell as the 4 stages.stages.

The entire 4The entire 4--stage cycle is made up of 3 primary trends.stage cycle is made up of 3 primary trends.


Building Block TwoBuilding Block Two

There are only three things a stock can do:There are only three things a stock can do:

go upgo up, , go downgo down, ,

ororgo sidewaysgo sideways..

Up TrendUp Trend

Defined by a series of Defined by a series of higher highs and higher lowshigher highs and higher lows

The Up trend is better known as Stage 2.The Up trend is better known as Stage 2.

The trader’s focus is to Buy the

dips/declines and the breakouts.

The trader’s focus is The trader’s focus is to to BuyBuy the the

dips/declines and the dips/declines and the breakouts.breakouts.


Down TrendDown Trend

Defined by a series of Defined by a series of lower highs followed by lower lowslower highs followed by lower lowsThe Downtrend is better known as Stage 4.The Downtrend is better known as Stage 4.

The trader’s focus is toSell / short the ralliesand the breakdowns.

The trader’s focus is toThe trader’s focus is toSell / shortSell / short the ralliesthe ralliesand the breakdowns.and the breakdowns.


Sideways TrendSideways Trend

Defined by a series of Defined by a series of ““relativelyrelatively”” equal highs and lows.equal highs and lows.The Sideways Trend is better known as Stage 1 & Stage 3.The Sideways Trend is better known as Stage 1 & Stage 3.

The trader can do both. Buy the dips and/or

Sell the rallies.

The trader can do both. The trader can do both. BuyBuy the dips and/orthe dips and/or

SellSell the rallies.the rallies.


T H E U P T R E N D

A n U p t r e n d i s d e f i n e d a s a s e r i e s o f h i g h e r h i g h s a n d h i g h e r l o w s .

1

2

3

4

D

5

A

B

C

?


U P T R E N D



A L T R W e e k l y


aa bbcc

dd

eeff

1122

33

4455

U P T R E N D


N T R S


HighHigh

LowLow

HighHigh

LowLow

HH

LL


U P T R E N D



S V R N 4 Green4 Green

6 Green6 Green

5 Green5 Green

22


U P T R E N D



C R U






U P T R E N D



A M C C 5 - M i n


No 3 bar declines = Exceptional PowerNo 3 bar declines = Exceptional Power

TimeTime

U P T R E N D



I N T U 5 - M i n


In an uptrend, the swing traderIn an uptrend, the swing traderbuysbuys dipsdips and and breakoutsbreakouts

DipDip

BreakoutBreakout

BreakoutBreakout DipDip

DipDip

T H E D O W N T R E N D

T h e D o w n t r e n d i s d e f i n e d a s a s e r i e s o f l o w e r h i g h s a n d l o w e r l o w s .

3

4

5

?

2

1

E

A B

C

D


50%50%

50%50%

D O W N T R E N D

T h e d o w n t r e n d i s d e f i n e d b y a s e r i e s o f l o w e r h i g h s a n d l o w e r l o w s


A D T N D a i l y

2 Green2 Green

2 Green2 Green

2 Green2 Green6 Red6 Red

10 Red10 Red

4 Red4 Red 6 Red6 Red


D O W N T R E N D





A D T N D a i l y


Deep Drops & Feeble RalliesDeep Drops & Feeble Rallies

D O W N T R E N D





F O N D a i l y

Institutional LiquidationInstitutional Liquidation



T h e S i d e w a y s T r e n d i s d e f i n e d a s a s e r i e s o f r e l a t i v e l y e q u a l h i g h s a n d e q u a l l o w s .

4

1

2

AA

BBCC

11

22

33 11

AA

2233

BB

CC




C S C






B G E N


Trouble RevisitedTrouble Revisited

Pleasure RevisitedPleasure Revisited Pleasure RevisitedPleasure Revisited


Combining Building Blocks One and TwoCombining Building Blocks One and Two

There is only one Cycle or There is only one Cycle or movement a stock can movement a stock can make. We call this the make. We call this the Atom.Atom.

This Cycle is made up of This Cycle is made up of 4 stages (1, 2, 3 & 4).4 stages (1, 2, 3 & 4).

These 4 stages are made These 4 stages are made up of 3 primary trends up of 3 primary trends (Up, Down & Sideways).(Up, Down & Sideways).

Each trend should have its Each trend should have its own matching trading own matching trading actions.actions.


Buy & Sell


Buy & Sell


Buy & Sell


Buy & Sell


& B/Ds


& B/Ds




Buy & Sell


Buy & Sell

Part IIIPart III

Anatomy of Up Anatomy of Up &&

Down TrendsDown Trends


12

34

1

2

3

4

2

Major Bullish Stage 2Major Bullish Stage 2

Minor StagesMinor StagesMinor StagesMinor Stages

Minor Stage 1’sMinor Stage 1’s = Bottoming Tails, COGs, NRBs and Novice Gaps = Bottoming Tails, COGs, NRBs and Novice Gaps



Note that the up trend is nothing more than a series of repetitive Stock Cycles (Atoms).

Pristine traders can buy every Pristine traders can buy every dip and breakout in stage 2 up dip and breakout in stage 2 up trendstrends. The question is not “ifif” to buy, but “whenwhen” to buy the dip (breakout).

While the up trend signifies that the stock is in a ““MajorMajor”” Stage 2Stage 2, note that the up trend itself has minor stage 1s, 2s, 3s & 4s.


Pristine traders buy when theMinor 2Minor 2 matches the Major 2Major 2.Herein lies the master key to stock market accuracy on the buy side. The question of “whenwhen” to buy is now answered. A buy is triggered each time there is a stage to stage “MATCHMATCH.” DonDon’’t Miss This t Miss This Concept. It Is PricelessConcept. It Is Priceless!!

2

3

4

1

2

3

4

2

Bullish Stage 2

1

BuyBuy

BuyBuy


The buy setup develops as follows:The buy setup develops as follows:

1

3

4

2

2

3


4


2


1


Entire uptrend is Major Stage 2Entire uptrend is Major Stage 2


4

3

4

1

2

3

4

1

2

Major Bearish Stage 4Major Bearish Stage 4



Minor Stage 3’sMinor Stage 3’s = Topping Tails, COGs, NRBs and Novice Gaps = Topping Tails, COGs, NRBs and Novice Gaps



Note that the downtrend is nothing more than a series of repetitive Stock Cycles (Atoms).

Pristine traders can sell short Pristine traders can sell short every rally and breakdown in every rally and breakdown in stage 4 down trendsstage 4 down trends.. The question is not “if” to short, but “when” to short the rally (breakdown).

While the downtrend signifies that the stock is in a “Major” Stage 4, note that the downtrend itself has minor stage 1s, 2s, 3s & 4s. 4

3

4

1

2

3

4

1

2

Bearish Stage 4


Pristine traders short when theMinor 4 matches the Major 4. Herein lies the master key to stock market accuracy on the short side. The question of “when” to short is now answered. A short is triggered each time there is a stage to stage “MATCH.” DonDon’’t Miss This t Miss This Concept. It Is PricelessConcept. It Is Priceless!!

SellSell

SellSell


The short setup develops as follows:The short setup develops as follows:

4

3

1

24


3


2


4

1


Entire trend is Major stage 4Entire trend is Major stage 4

Part IVPart IV

Pristine’s Master Pristine’s Master Buy and Sell SetBuy and Sell Set--upsups

The Key The Key BuyBuy Setup is made up of only a few basic Setup is made up of only a few basic criteria.criteria.

This setup is the key to capturing big 1This setup is the key to capturing big 1-- to 5to 5--bar trading bar trading gains on the upside.gains on the upside.

The trader can often use this one setup alone to buy The trader can often use this one setup alone to buy without any other guide.without any other guide.

Pristine’s Buy SetupPristine’s Buy Setup

11stst CriteriaCriteria 3 or more consecutive lower highs (major emphasis on the highs).3 or more consecutive lower highs (major emphasis on the highs).22ndnd CriteriaCriteria 3 or more consecutive lower lows3 or more consecutive lower lows33rdrd CriteriaCriteria 3 or more consecutive dark (red) bars.3 or more consecutive dark (red) bars.Note:Note: At times, it is acceptable for the close to be above the open onAt times, it is acceptable for the close to be above the open on the last daythe last day.

Stock has 3 or more lower

highs.





Pristine’s Key Buy Setup (PBS)Pristine’s Key Buy Setup (PBS)

11

22

33aa

bb

cc

1) 1) BuyBuy when the stock trades above the prior day’s high, or 2) 2) BuyBuy when the stock trades above its first 30-minute high.

Note:Note: Only use Buy Action 2 if the prior day’s high is too far away.

Buy $0.05 to $0.10 above the

prior day’s high.

Stop loss $0.05 to $0.10 below the current or prior day’s low.

3) Place a stop $0.05 to $0.10 below the entry day’s low, or the prior day’s low, whichever is lower.

Objective

4) Use a trailing stop under each prior low after two complete bars until a) the price objective is met, b) a reversal bar has developed or c) a gap up has occurred.

Pristine’s Buy ActionPristine’s Buy Action

This chart of CMB shows a This chart of CMB shows a perfect Pristine Key perfect Pristine Key Buy Buy SetSet--up. The up. The Green ArrowGreen Arrow points points to the buy bar. The to the buy bar. The Red LineRed Linesignifies where the Pristine signifies where the Pristine Trader places his stop.Trader places his stop.

Pristine’s KeyPristine’s Key BuyBuy SetSet--upup

1)1) 3 Consecutive lower highs 3 Consecutive lower highs and lower lows (and lower lows (number 1number 1).).

2)2) Close on each day is below Close on each day is below the open price. Exceptions the open price. Exceptions cancan

be made either on the third be made either on the third day or when the pattern is day or when the pattern is perfect.perfect.


The chart of CMB shows two The chart of CMB shows two perfect Pristine Key perfect Pristine Key Buy Buy SetSet--ups. The ups. The Green ArrowsGreen Arrows point point to the to the buybuy bars. bars.

The The Red LinesRed Lines signify where signify where the Pristine Trader places his the Pristine Trader places his stopsstops ..

Pristine’s Key Pristine’s Key Buy Buy SetSet--upup

1)1) 3 Consecutive lower highs 3 Consecutive lower highs and lower lows (and lower lows (numbernumber 1 & 21 & 2).).

2)2) Close on each day is below Close on each day is below the open price. Exceptions can the open price. Exceptions can be made on the third day or be made on the third day or when the pattern is perfect.when the pattern is perfect.


Pristine Buy Example (1)Pristine Buy Example (1)

40ma40ma

20ma20ma



20m > 40ma +20m > 40ma +


CCI (5) Buy SignalCCI (5) Buy Signal

Buy above Prior HighBuy above Prior High


40ma40ma20ma20ma



20m > 40ma +20m > 40ma +


CCI (5) Buy SignalCCI (5) Buy SignalBuy above Prior HighBuy above Prior High

The Key The Key ShortShort Setup is made up of only a few basic criteria.Setup is made up of only a few basic criteria.

This setup is the key to capturing big 2This setup is the key to capturing big 2-- to 5to 5--day trading gains day trading gains on the downside.on the downside.

The trader can often use this one setup alone to short without The trader can often use this one setup alone to short without any other guide to trade the markets.any other guide to trade the markets.


11stst CriteriaCriteria 3 or more consecutive higher lows.3 or more consecutive higher lows. (major emphasis on the lows).22ndnd CriteriaCriteria 3 or more consecutive higher highs.3 or more consecutive higher highs.33rdrd CriteriaCriteria 3 or more consecutive light (green) bars.3 or more consecutive light (green) bars.Note:Note: At times, it is acceptable for the close to be below the open on the last day.

Stock has 3 or more higher lows.






11

22

33aa

bb

cc

1) Short when the stock trades below the prior day’s low, or 2) Short when the stock trades below its first 30-minute low.

Note: Only use Short Action 2 if the prior day’s low is too far away.

Objective

4) Use a trailing stop above each prior day’s high until a) the price objective is met,b) a reversal bar has developed or c) a gap down has occurred.

Stop loss $0.05 to $0.10 above the current or prior day’s high.

3) Place a stop $0.05 to $0.10 above the entry day’s high, or the prior day’s high, whichever is higher. Traders with a very low threshold for pain should use the entry day’s high.

Short $0.05 to $0.10 below the prior day’s low.

Pristine’s Short ActionPristine’s Short Action


PSSPSS


LLLL

LLLL


PSS w/ COGPSS w/ COG


LLLL


3 or more consecutive higher lows3 or more consecutive higher lows

After a lower low (LL), After a lower low (LL), the swing trader looks for:the swing trader looks for:

LLLL

PSSPSS

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OLIVER VELEZ - Swing, Core, Guerrilla, Options Trading Tactics