IFTAUPDATE 2014 Volume 21 Issue 1

2014 Volume 21 Issue 1

IN THIS ISSUE
1

President’s Report to Colleagues

2

Congratulations New CFTes!

2

Important Changes to the CFTe Program

4

Congratulations New MFTAs!

42013 John Brooks Memorial Award Winner

6

Calendar At-A-Glance

8

Member News

10 The Swiss Association of Market
Technicians—Dr. Henry Pruden Interview

Education Lounge
15 How to Confirm Elliott Wave Counts
With the Fibonacci Strange Attractor
Model
19 Leveraged Trading With Calculated Risk
Management Based on the Point andFigure Method Considering Volatility
22 The Wisdom and Strength of the IKH
24 Stop and Risk Management in Daily
Trading
26 CALL—Wyckoff for Smart Money
Timing28 Market Breadth Indicator—Arms Index
25 Save the Dates!
31 IFTA Member Societies
32 IFTA Journal Call for Submissions

Next issue: June 2014
Submission Deadlines
Education articles: May 15—
send submissions to newsletter@ifta.org
All other content: June 1—
send submissions to admin@ifta.org
Advertise in the UPDATE and reach morethan 6,950+ IFTA colleagues worldwide.
For more information, go to
www.ifta.org/publications/newsletter/.

page 1a newsletter for the colleagues of the International Federation of Technical Analysts

President’s Report to Colleagues
Dear IFTA Colleagues,
There are many ways to find out what isgoing on within the IFTA community. One
is through this very newsletter. Societies
can use it as a platform to inform about
their local events, and since last year, eachissue also contains educational articles
written by volunteers. Therefore, it also
serves as a platform for colleagues whowant to publish their material. Starting
this year, the newsletter is now translated
into Chinese and distributed in China andHong Kong. This will increase the potential number of readers to approximately
10,000.
We are also present on social media (forexample, on LinkedIn). Currently, thisgroup has about 1,050 members. The
topics discussed might include specific
events that are organized by the societies,
charting, specific technical tools, or our
CFTe program.
Another way to find out what is happening is to look at the websites of thedifferent societies. A good starting point iswww.ifta.org under ‘contact us’, where you
will find the websites of all our member
societies and developing societies. I would
like to highlight some of their activities:
In early March, TASSA in South Africa
hosted an event with Victor Pershikov,
MFTA, who spoke on how to apply “internal patterns of Fibonacci retracements”,
which also was the topic of his MFTA paper.
TSAA-SF in San Francisco held a presentation with John Lewis, who presented someof the methodologies that he has developed to manage discretionary portfolios.
LSTA in Lebanon will hold a two-day conference on May 6. LSTA will host a presentation by Evan Wilson of the Socionomics
Institute on Elliott Wave principles.
STANZ in New Zealand had Tim Rea as aspeaker. He talked about his World Cup
trading experience.

IFTA UPDATE is a publication of the International
Federation of Technical Analysts, Inc.
(www.ifta.org), a not-for-profit professionalorganization incorporated in 1986.
International Federation of Technical Analysts
9707 Key West Avenue, Suite 100
Rockville, MD 20850 USA
Email: admin@ifta.org • Phone: +1 240-404-6508

SAMT in Switzerland has published the
new edition of its journal on its website.
ATAA will hold its annual three-day conference in Melbourne in May. ATAA has
invited 12 highly respected Australian andinternational professionals.
Our own IFTA conference in 2014 will be
in London and hosted by STA. For those
who would like to register or are looking for more information, please visit theconference website. So far, registration forthe conference is high, and STA is offering
the earliest early-bird rate that I have everseen for an IFTA conference.
On our own website, we also provide
information about upcoming events. If
you want to subscribe to IFTA community
news, we will let you know about the CFTe
exam program, our IFTA conference, andupcoming webinars. If you would like to bea sponsor of certain IFTA-related events,
or if you want to advertise with IFTA, ourIFTAUPDATE 2014 Volume 21 Issue 1

page 2President's Report (continued)
website is also the easiest way to getin contact with us.
Last but not least, I want to thank allof you who took the time to send inmaterial and news from your societies.
It is part of IFTA’s purpose to shareideas and information with other colleagues. Thank you very much for yourefforts.
I hope to see you all in London at ourconference!
Best regards,

Rolf Wetzer, Ph.D.
IFTA President

Congratulations New CFTes!
Mohamed Ahmed Ismail Abdel-Rhman (ESTA)

Mahmoud Jaber (STA)

Ibrahim Hossny Anwar Abdullah (ESTA)

Nobuyuki Kakii (NTAA)

Abdelrahmn Abdelmonim Aborgilah (ESTA)

Andrew Kinsella (STA)

Mohamed Shaker Ahmed Ahmed (ESTA)

Takuya Kitabayashi (NTAA)

Aous Hameed Alhayany (ESTA)

Fumihiro Kono (NTAA)

Andreas Binder (VTAD)

Stefan Küster (VTAD)

Nizar Chaibi (STA)

Christian Alexander Lawrence (STA)

Zhanglong Cheng (NTAA)

Tarek Fekry Mostafa Mahmoud (ESTA)

Ahmed Dahbani (STA)

Osama Fawzy Kamel El Mashad (ESTA)

Ashraf Abdel-Fattah El-Abgy (ESTA)

Tracy McNally (ATAA)

Ahmed Said Hafez El-Bagourey (ESTA)

Shohei Miyamoto (NTAA)

Ahmed Osman El-Geziry (ESTA)

Tomoyuki Mizukuchi (NTAA)

Khaled Sohail El-Zaben (ESTA)

Tamer Ahmed Mounir Mohamed (ESTA)

Azza Ebrahim Mohammed Elhoufy (ESTA)

Ossama Naguib (ESTA)

Shaimaa Abd ElMageed (ESTA)

Ryotaro Nakao (NTAA)

Mohamed Saber Abd Elmaksoud Abd Elrahman(ESTA)

Tetsushi Namba (NTAA)

Haytham Mohamed Amin Fayed (ESTA)
Toshihiko Fujimori (NTAA)
Kazuya Fukamachi (NTAA)
Tomoatsu Fukudo (NTAA)
Ahmed Abd El-aziz Mahmoud Ghareeb (ESTA)
Georgios Hadjinicodemou (STA)
Mohamed Ahmed Osman Haridi (ESTA)
Sameh Talaat Hassan (ESTA)
Abd Elrahman Mohamed Raslan Hegazy (ESTA)
Yasuyuki Hieda (NTAA)
Shinya Hisada (NTAA)
Ahmed Saad Hussein (ESTA)El Sayed Ahmed Ibrahim (ESTA)
Takashi Imai (NTAA)Go Ishihara (NTAA)
Hiroaki Ito (NTAA)
Daisuke Iwama (NTAA)

Shinobu Namikawa (NTAA)
Miyoko Nishimura (NTAA)
Tomohiro Ono (NTAA)
Olivier Quinty (AFATE)
Philipp Andre Rätz (VTAD)
Javier Romero Escolar
Yoshihiro Sasada (NTAA)
Mo’men Kamal Sayed (ESTA)
Michael Erich Schneeberger (SAMT)Uwe Schubert (VTAD)
Mohamed Adel Saad Kenawy Shewail (ESTA)
Yasuo Shibata (NTAA)
Georgios Spanos (STA)
Jorge Luces Trillo (STA)
Hajime Wakayama (NTAA)
Seiji Yamamoto (NTAA)
Hidetoki Yokoi (NTAA)
Ryuta Zaima (NTAA)

Important
Changes to the
CFTe Program
Syllabus and Study Guides
CFTe Level I (offered all year long) and
CFTe Level II (offered biannually in April
and October) candidates should study
the current Syllabus and Study Guide for
CFTe Level I and CFTe Level II for any exam
taken through 30 September 2014, and the
new Syllabus and Study Guide for any exam
taken on or after 1 October 2014.
Languages
Effective on 1 October 2014, the CFTe I
will only be available in English, German,
and Arabic. The CFTe II will be offered in
English, German, Arabic, Italian, French,and Spanish through 8 October 2014. After
this date, the exam will only be available
in English, German, and Arabic.

Why Certify?
Obtaining the CFTe or MFTA designation(s)demonstrates that you have achieved thehighest level of expertise in the field oftechnical analysis. Join an elite group who
have already recognized the importanceof these certification(s) in elevating theirprofessional standing by becoming certified by the International Federation ofTechnical Analysts.

VE T E
SA DA
E
TH

27TH Annual Conference

9–11 October 2014
The Waldorf Hilton Hotel, London
Unravelling the DNA of the Market
The Society of Technical Analysts would like toinvite you to IFTA 2014 in London■ London is an accessible, convenient andefficient travel destination for North America andAsia as well as Europe.
■ London is a cosmopolitan, vibrant and bustlingcity. Having hosted the Olympics in 2012, thecelebratory atmosphere is set to last!
■ The title of the conference “Unravelling the DNAof the market” will allow us to explore some of
the underlying causes of market behaviour.
Headline speakers
Marcus du Sautoy, OBE
Alexander Elder
Conference Secretariat
IFTA2014@contendam.com
Visit the website now to register your interest

conference.ifta.org/2014

IFTAUPDATE 2014 Volume 21 Issue 1

page 4

Congratulations New MFTAs!
Andrew J.D. Long (CSTA)

Andreas Thalassinos (STA)

Alex Charles Neale (STA)

Samuel Kristanto Utomo (AATI)David Leo Price (STA)

Fergal A. WalshThis paper is presented for the best Master of Financial Technician (MFTA)
research paper written each year.

2013 John Brooks Memorial
Award WinnerAlex Neale, MFTA

Andrew J.D. Long, MFTA (CSTA)
MFTA Research Paper Title:
Identification of High Probability Target
Zones (HPTZ)
Andrew J.D. Long, MFTA,
is a professional technicalanalyst and trader. The
founder and publisher of
TRIGGER$.ca, an
economic and technicalanalysis publication for
active traders and investors, he and his
venture partner, Gordon T. Long.com,
regularly publish market and economic
forecasts with uncanny accuracy.
Andrew has a variety of experience, including working for a private fund researching and developing proprietary technicalanalysis methods. Researching and trying
to understand the markets has been a lifelong pursuit and journey—starting in earlyhigh school with P/E ratios and balance
sheets, to the present day, as he continues
to research and develop advanced technical analysis methods.
In his publication, global economic andfundamental analysis is integrated withadvanced technical analysis, offering
unique and often correct market perspectives. The purely technical method
discussed in his MFTA paper is practiced
daily with published forecasts, tracking the
progress of the system, which continues
to achieve 80–90% accuracy.

MFTA Research Paper Title: Use of Social Media Mentions in Technical Analysis

MFTA Research Paper Title: Use of Social
Media Mentions in Technical Analysis(see right for details)

Alex Neale, MSTA, CMT, MFTA, is a professional market technician and works at
Cantor Capital, the CFD department of
Cantor Fitzgerald Europe. Alex started his
career as a graduate in 1998 at GNI on thedesk, which launched the CFD productto the retail market. After a period as a
junior CFD broker, Alex quickly moved
full time into writing technical-based
research recommendations and generalmarket commentary for active equity CFD

David Price, CFTe, MFTA (STA)In Memory of John Brooks

MFTA Research Paper Title: Enhancing
Portfolio Returns and Reducing Risk by
Utilizing the Relative Strength Index as aMarket Trend IdentifierJohn Brooks was a highly respected technical securities analyst who worked at a number of prominent
Wall Street firms, including Edwards & Hanley,
Robinson Humphrey, and Lowry Research, where heserved as senior vice president and senior analyst.

Alex Neale, MFTADavid Price, CFTe, MFTA,
has over a dec ade ofexperience working for
financial firms, including
Goldman Sachs, Brevan
Howard, and JPMorgan,
ac ros s equit y, global
macro, FOREX, quantitative, and systematic investment strategies.

continued on page 5

During his long and distinguished career, John
was the co-founder and past-president of theMarket Technicians Association (MTA) and was
one of the first recipients of the Chartered Market
Technician (CMT) designation in the UnitedStates. In 1985, he co-founded the International
Federation of Technical Analysts (IFTA) and served
as chairman from 1996 to 1998. As the long-timechairman of the Market Technicians Association
Educational Foundation, John was instrumental
in establishing accredited college-level courses intechnical securities analysis in many universities.
John was also a co-founder of the AmericanA s s o c i a t i o n o f P r o f e s s i o n a l Te c h n i c a l
Analysts (AAPTA) and served on its board of

traders. Since 2012, Alex has worked at
Cantor Fitzgerald Europe, continuing hisrole of providing market commentary andtechnical analysis for the high net-worth
equity CFD traders. The purpose of his
MFTA research paper was to investigate
the increasing trend of using social media
data in trading, focusing on whether datafrom social media can add value in equity
selection when combined with traditional
technical analysis methods.

directors. John authored the highly regarded
book Mastering Technical Analysis, published by
McGraw-Hill in 2005. His many awards include
the prestigious Market Technicians Association
Award for Outstanding Contribution to the Fieldof Technical Analysts, and the Technical Securities
Analysts Association of San Francisco’s Lifetime
Award for Outstanding Achievement in TechnicalAnalysis. In recognition of his support of technicalsecurities analysis throughout the world, John
was also named a Fellow of the British Societyof Technical Analysts (STA).

Past winners of the award:
2012: Yoshinobu Sakai, CFTe, MFTA
2011: Stephan A. Belser, CFTe, MFTA
2010: Mohamed Elaasar, MFTA
2009: Pavlos Theodoulos Ioannou, MFTA, CFTe
2008: Francesco Caruso, MFTA

IFTAUPDATE 2014 Volume 21 Issue 1

page 5Congratulations New MFTAs (continued)
David has produced technical analysis
research of equity, fixed income, FX, andcommodity markets for discretionary portfolio managers. He is a Certified Financial
Technician (CFTe), a Master in Financial
Technical Analysis (MFTA), and a memberof the Society of Technical Analysts (MSTA).
He holds an M.Sc. in financial management.
In his research paper, David presented analternative use of the Relative Strength
Index, highlighting that it can also be used
to identify market trends. Utilizing the indicator in this way, his systematic investment
strategy outperformed three of the largest stock indices, producing substantially
improved capital appreciation while reducing both risk of capital loss and volatilityof returns. As someone who is passionate
about investment and technical analysis, heis eager to research and identify new technical alpha-generating and risk-reducing
investment strategies.

Andreas Thalassinos, BSc, MSc,
MSTA, CFTe, MFTA (STA)

professionals. His passion for trading led
him to study the markets from a mathematical and mechanical point of view. He
is a dynamic advocate of algorithmic trading and has developed hundreds of automated systems, indicators, and trading
tools. His trading products are being used
today all over the world by traders, investors, FOREX brokers, and investment firms.
A ndrea s founded FxW iz ard s (w w w.
fxwizards.com), an educational company
specialized in FOREX trading, with the goalof providing the real truth of FOREX trading
through high-level education to beginners
and professionals alike. He emphasizes that
capital preservation is imperative for traders
to survive in the financial markets, and heguides traders on employing swing trading
and locking profits based on his researchfindings and results.
Andreas is currently traveling around theglobe giving seminars as a guest speakerat FOREX conferences.

MFTA Research Paper Title:
Anatomy of a living trend: Swing charts,
High Points and Low Points, Peaks andTroughs and how their underlying structure may define their forecasting strength

Samuel Kristanto Utomo, CFTe,
MFTA (AATI)

Andreas Thalas sinos,
B.Sc., M.Sc., MSTA, CFTe,M F TA , i s a h i g h l yrespected lecturer in the
education of traders,investors, and FORE X

Samuel Kristanto Utomo,
CFTe, MFTA, is the cofounder and director of alimited par tnership inIndonesia called Quantic
A lp ha, w hic h a p plie s

MFTA Research Paper Title: Refining
Wilder’s ADX: Adjustment to the Price
Actions by Utilizing Closing Prices

statistical arbitrage strategy in currency
markets. As a technician, Samuel has akeen interest in developing a better way
to identify the trend of financial timeseries. He found that it is possible toenhance the accuracy of trend measurement of an ADX indicator by changing themain input of ADX with closing prices.
Furthermore, he provided evidence that
better trading results could be accomplished using the modified ADX indicator
instead of the original one.

Fergal A. Walsh, CFTe, MFTA
MFTA Research Paper Title: The
Alternative Head and and Shoulders: A
New Perspective on a Pre-Eminent Pattern
Fergal Walsh has been a part-time traderin financial markets since 2010 and is currently completing a bachelor of arts degreein economics and politics at University
College Dublin. Subsequently, he hopes tofurther his experience in financial markets
and continue developing trading strategies
based on technical analysis.

IFTAUPDATE 2014 Volume 21 Issue 1

page 6

Calendar At-A-Glance
Date

Host

Speaker

Location

Time

ContactMonthly

Presentations from local and international speaker on acomprehensive range of topics (e.g., sharemarket, CFDs, options,futures, FOREX trading, methodologies, money management,
psychology).

Topic

STANZ (New
Zealand)

Various

Epsom Community Centre
200-206 Gillies Ave.
Auckland, NZ

Variouswww.stanz.co.nz/

Monthly

Meetings are held monthly in nine cities across Australia.
All monthly meetings are free to members. Visitors are welcome
to attend. Bookings are not required. Visitors fee is $30.

ATAA

Various

Various

Variouswww.ataa.com.au/meetings

Monthly

Chapter leaders and their volunteer members serve as
CSTA Chaptersambassadors for the CSTA and plan social and educational events
for the area. Events include presentations by industry professionals
and technical analysis experts and peer learning gatherings.
Chapters also play a vital role in their community by connecting
individuals and promoting technical analysis.

Various

Various

Variouswww.csta.org

March

29

Conference Committee Meeting

TASN

TBA

77B Mobolaji Bank AnthonyWay,
Behind Ikeja Plaza Ikeja, Lagos, Nigeria

10:00

admin@tasnigeria.org

April

3

STA Diploma II Exam Preparation Session

STA

Luise Kliem
Chief Examiner

London School of Economics

14.0017.00

info@sta-uk.org

8Monthly Meeting

STA

Oliver Woolf,
Bloomberg

British Bankers Association, Pinners Hall105-108 Old Broad Street, London EC2N 1EX

13

STA Diploma II Exam

STA

N/A

London School of Economics

13.0017.00

info@sta-uk.org

16

Certified Financial Technician (CFTe) Level II Examination

IFTA

NA

Various

Variousadmin@ifta.org; www.ifta.org

19Monthly Meeting

TASN

TBA

77B Mobolaji Bank AnthonyWay,
Behind Ikeja Plaza Ikeja, Lagos, Nigeria

10.00

admin@tasnigeria.org

26

Committee Meeting

TASN

TBA

77B Mobolaji Bank AnthonyWay,
Behind Ikeja Plaza Ikeja, Lagos, Nigeria

11.00

admin@tasnigeria.org

1

Master of Financial Technical Analysis (MFTA) Session 1
application, outline and fees deadline

IFTA

NA

NA

NA

admin@ifta.org

6

Socionomics

TSAASF

Euan Wilson,
The Socionomics
Institute

Bloomberg, Pier 3
San Francisco, CA USA

15:0016:30 (PT)www.tsaasf.org

10

Introductory Technical Analysis Course for New Members

TASN

Membership
Committee

77B Mobolaji Bank AnthonyWay,
Behind Ikeja Plaza Ikeja, Lagos Nigeria

10.00

admin@tasnigeria.org

13

Monthly Meeting

STA

Steve Griffiths,
MTPredictor

British Bankers Association, Pinners Hall105-108 Old Broad Street, London EC2N 1EX

18.0020.00

info@sta-uk.org

15

IFTA Update submission deadline for educational articles(mid-June release)

IFTA

NA

NA

Variousnewsletter@ifta.org
Attn: Aurélia Gerber, Journal Director

24Monthly Meeting

TASN

TBA

77B Mobolaji Bank AnthonyWay,
Behind Ikeja Plaza Ikeja, Lagos, Nigeria

10.00

admin@tasnigeria.org

31

IFTA Journal Call for Papers submission deadline

IFTA

NA

NA

NA

journal@ifta.org

1

IFTA Update submission deadline for news content(mid-June release)

IFTA

NA

NA

Variousadmin@ifta.org

10Monthly Meeting

STA

TBA

British Bankers Association, Pinners Hall105-108 Old Broad Street, London EC2N 1EX

18.0020.00

info@sta-uk.org

May

June

info@sta-uk.org

IFTAUPDATE 2014 Volume 21 Issue 1

page 7

Calendar At-A-Glance (continued)
Junecontinued

July

August14

CFTe Introductory Class

TASN

TBA

77B Mobolaji Bank AnthonyWay,
Behind Ikeja Plaza Ikeja, Lagos, Nigeria

10.00

admin@tasnigeria.org

21

Market Analysis Training

TASN

TBA

77B Mobolaji Bank AnthonyWay,
Behind Ikeja Plaza Ikeja, Lagos, Nigeria

10.00

admin@tasnigeria.org

21

Committee Meeting

TASN

TBA

77B Mobolaji Bank AnthonyWay,
Behind Ikeja Plaza Ikeja, Lagos, Nigeria

10.00

admin@tasnigeria.org

2

STA Diploma I Exam

STA

N/A

Queen Mary University London

18.0020.00

info@sta-uk.org

15

Summer Party

STA

TBA

British Bankers Association, Pinners Hall105-108 Old Broad Street, London EC2N 1EX

18.0020.00

info@sta-uk.org

31

Master of Financial Technical Analysis (MFTA)
Alternative Path, Session 2 application deadline.

IFTA

NA

NA

NA

www.ifta.org

5

Board Meeting

TASN

TBA

TBA

10.00

admin@tasnigeria.org

15

IFTA Update submission deadline for educational articles(mid-September release)

IFTA

NA

NA

Variousnewsletter@ifta.org
Attn: Aurélia Gerber, Journal Director

15

IFTA Journal applicants notification of acceptance/rejection IFTA

NA

NA

NA

journal@ifta.org

Topic

Host

Speaker

Location

Time

Contact

1

IFTA Update submission deadline for news content (midSeptember release)

IFTA

NA

NA

Variousadmin@ifta.org,

9Monthly Meeting

STA

TBA

British Bankers Association, Pinners Hall105-108 Old Broad Street, London EC2N 1EX

18.0020.00

info@sta-uk.org

2

Master of Financial Technical Analysis (MFTA) Session 2
application, outline and fees deadline

IFTA

NA

NA

NA

admin@ifta.org

8

Certified Financial Technician (CFTe) Level II Examination

IFTA

NA

Various

Variousadmin@ifta.org; www.ifta.org

8

IFTA Board of Director’s Meeting

IFTA

Various

The Waldorf Hilton Hotel, London

TBA

admin@ifta.org

8

IFTA Annual General Meeting (Members Only)

IFTA

Various

The Waldorf Hilton Hotel, London

TBA

admin@ifta.org

8

STA Diploma II Exam

STA

N/A

TBA

13.0017.00

info@sta-uk.org

9-11

IFTA 27th Annual Conference:
Unravelling the DNA of the Market

IFTA & STA

TBA

The Waldorf Hilton Hotel, London

Variousadmin@ifta.org; www.ifta.org

14Monthly Meeting

STA

TBA

British Bankers Association, Pinners Hall105-108 Old Broad Street, London EC2N 1EX

18.0020.00

info@sta-uk.org

15

Master of Financial Technical Analysis (MFTA) Session 1
paper submission deadline

IFTA

NA

NA

NA

admin@ifta.org

11Monthly Meeting

STA

TBA

British Bankers Association, Pinners Hall105-108 Old Broad Street, London EC2N 1EX

18.0020.00

info@sta-uk.org

15

IFTA Update submission deadline for educational articles(mid-December release)

IFTA

NA

NA

Variousnewsletter@ifta.org
Attn: Aurélia Gerber, Journal Director

1

IFTA Update submission deadline for news content(mid-December release)

IFTA

NA

NA

Variousadmin@ifta.org

9

Christmas Party

STA

TBA

British Bankers Association, Pinners Hall105-108 Old Broad Street, London EC2N 1EX

18.0020.00

info@sta-uk.org

31

IFTA Journal Web publication

IFTA

NA

NA

NA

www.ifta.org/publications/journal/

Date
September

OctoberNovember

December

IFTAUPDATE 2014 Volume 21 Issue 1

page 8

Member NewsSTA (UK)
Preparations for the 2014 IFTA Conference
are underway, with a resoundingly positive
response in bookings to date, and muchinterest in the sponsorship opportunities
available. Headline speakers Marcus duSautoy, OBE, John Murphy, Dr. Alexander
Elder, and Tony Plummer will be helping us
unravel the DNA of the markets. To receive
updates and information on early booking,please visit http://conference.ifta.org/2014.
In February, the STA joined forces with
the Market Technicians Association andThomson Reuters to host a seminar in
London titled “Fusion Analysis”. The
event was very well attended with 300 delegates registered. Speakers included Ralph
Acampora, Craig Johnson, Cornelius Luca,
David Keller, Jeff Hochman, Charles Morris,
Deborah Owen, and Trevor Neil.
Education continues to be at the core of
STA activities. More than 40 students areenrolled in the Diploma II Course, whichstarted in January. The Home Study Course(HSC) CD-ROM continues to be a valuable
learning tool for those unable to attend theweekly lectures at the London School of
Economics. More than 60 are expected totake the Diploma I examination in London
and overseas on 5 March, and another exam

date is planned for 2 July. The next STA
Diploma II exam will be held on 13 April.
For more information on STA courses,
the HSC, or the Diploma I and II exams,
whether in London or overseas, pleaseemail the STA office at info@sta-uk.org orvisit our website www.sta-uk.org.

SAMT (Switzerland)
SAMT opened 2014 by hosting its exclusive annual guest speaker, Ian McAvity,
author of Deliberations on World Markets.
The event was hosted in Zurich andGeneva for the first time in many years.
In Geneva, SAMT partnered with industry
colleagues from the Swiss Association of
Financial Advisors (GSCGI), which helped
attract a rich diversity of leading market
professionals.

Pring of Pring Turner Capital, who presented latest perspectives on his recently
published book, “Investing in the Second
Lost Decade”. Watch Mr. Pring’s interview
with a local Swiss media network.
SAMT is continuing to work hard to further
develop its educational training support
for local CFTe diploma candidates. The
SAMT CFTe Immersion weekend course,which includes over 16 hours of intense
training, was launched over a year ago by
joint instructors Ron William and Bruno
Estier. 100% of their students have successfully passed their CFTe exams. Anothercourse was successfully held just recently
on 22 and 23 March. Candidates interested
in registering for the next scheduled SAMT
CFTe Immersion course should contact
ronwilliamPR@gmail.com.

Ian McAvity, SAMT Geneva

SAMT Geneva Dinner with Martin Pring

Ian McAvity, SAMT Geneva

In March, Ron William, vice president andhead of the Geneva Chapter of SAMT,
organised a European Technical Analysis
Roadshow with IFTA neighboring colleagues, Robert Haddad, president of
AFATE in France, and Gregor Bauer, president of VTAD in Germany.
This uniquely collaborative IFTA event
featured exclusive guest speaker Martin

SAMT Zurich members with Martin Pring

Martin Pring and Ron
William, SAMTMartin Pring and Bruno
Estier, SAMT Geneva

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IFTAUPDATE 2014 Volume 21 Issue 1

page 10The Swiss Association of Market Technicians—
Dr. Henry Pruden Interview
Ron William, Vice President andHead of the Geneva Chapterof SAMT, hosted an interview
in November 2013 with Dr.
Henry Pruden, professor of
business at the Ageno School of Business,
Golden Gate University, San Francisco, CA,
USA, and Executive Director of the Instituteof Technical Market Analysis (ITMA)

Hank Pruden is a professor in the Ageno
School of Bu sines s at Golden Gate
University in San Francisco, California,
where he has been teaching for 37 years.
Hank is more than an academic theoretician. He has actively traded his own
account for the past 40 years. His personal
involvement in the market ensures thatwhat he teaches is practical for the trader,and NOT just abstract academic theory.
Hank is the executive director of theInstitute of Technical Market Analysis(ITMA). At Golden Gate University, hedeveloped the accredited courses in technical market analysis in 1976. Since then,the curriculum has expanded to include
advanced topics in technical analysis
and trading—in particular, the Wyckoff
Method. In his courses, Hank emphasizes
the psychology of trading in conjunction
with the use of technical analysis methods.
He has published extensively in both areas.

Hank has mentored individual and institutional traders in the field of technicalanalysis for many years. Dr. Pruden ispresently on the Board of Directors of theTechnical Securities Analysts Associationof San Francisco and is past presidentof that association. Hank was also on
the Board of Directors of the Market
Technicians Association (MTA). Hank has
served as vice chair of IFTA (International
Federation of Technical Analysts); IFTA
educates and certifies analysts worldwide.
For 11 years Hank was the editor of theMarket Technicians Association Journal,

the premier publication of technical analysts. From 1982 to 1993 he was a memberof the Board of Trustees of Golden Gate
University.
Ron William: The International Federationof Technical Analysts (IFTA) recognized
you as the recipient for its 2013 Lifetime
Achievement Award. How did you feel
about being nominated for your outstanding lifelong contribution to the development of technical analysis? Please selectlink to review the IFTA honorary video of
Dr. Henry Pruden’s lifetime achievements.
Henr y Pruden: It’s very gratifying toreceive the reward in front of my many
appreciative colleagues, who attended
the IFTA 2013 conference in San Francisco.
I’m particularly grateful to Bruce and Ellen
Fraser for all the consideration and carethat went into creating the video highlighting my preparation for TA and my achievements over the past 35 plus years.
That award is also the result of the contributions from so many of my colleagues inthe technical market analysis profession
from around the globe.
RW: What triggered your learning curve
onto the path of technical analysis?

HP: The bear market of 1974 drew myattention to the importance of market
timing. I was at the University of Texas atAustin at that time. My colleagues in the
Department of Finance believed in the fundamentals and individual stock selection
and holding for the long term. Their belief
in the “economic man” operating in thestock market clashed with my belief in anduse of the behavioral and psychologicalconsumer decision-maker that I used in myteaching and research in marketing. That
triggered a search that soon brought mein contact with technical analysis througha broker in Dallas, Texas. I was especiallydrawn to the visual and analytical aspectsof charts.
RW: Could you share more detail on yourprofessional experience as a photo interpreter at the U.S. Air Force and how it
may have aided the study of your technicalanalysis interests?
HP: Sure, I’ll be glad to. I was officiallytrained and served as a photo interpreterwith the U.S. Air Force during the Cold
War. Most of my work was classified as“secret” and thus, I’ll need to leave out
the interesting details. But, in general, I
would study aerial photographs to gain
an understanding of tendencies or trends

IFTAUPDATE 2014 Volume 21 Issue 1

in aircraft placement and movement. Just
as with stock market charts, I would study
details on a photo to discern signs of telltale activity. Hence, when I was introduced
to charts and to technical analysis, I felt
immediately at home.
RW: What key lessons did you learn fromthe bear market of 1974?
HP: The key lesson I learned from mylosses during the bear market of 1974 wasthat market timing is essential for longterm wealth-building and capital preservation. As a result, I learned about the Dow
Theory. I also started following trendline
charts and studying William L. Jiler’s book,
How Charts Can Help You in the Stock
Market (1962). In addition, I learned a great
deal from the book by Harvey Krow, Stock
Market Behavior: The Technical Approachto Understanding Wall Street (New York:
Random House, 1969).
RW: How did you develop and further yourlearning of technical analysis?
HP: Like most other individual trader/technicians of that era, I was largely selftaught, with the market subjecting me tothe “school of hard knocks.” No formal
courses of instruction were available, but
I did gain many useful techniques fromthe market advisory letters that I followed.
Of particular value was The Bank Credit
Analyst that had Martin Pring as its chief
technician. The BCA was also my first
exposure to the Elliott Wave Principle.

In addition, I studied Winning Market
Systems by Gerald Appel, which later
became the basic textbook at Golden
Gate University.
Big forward strides in my TA learning
came about through my formulating andthen teaching a collegiate level course intechnical market analysis. I was trading
full time for my own account in a private
office near my home in Marin County near
San Francisco while teaching part time atGolden Gate University. That teaching andlearning effort was aided and abetted bymy colleagues in the Technical Securities
Analysts Association of San Francisco.
Then, eventually, I took a correspondence
course on the Wyckoff Method that wasoffered by the Stock Market Institute.
Additionally, I gained exposure to Robert
Farrell at Merrill Lynch, and ultimately, I
joined and became involved in the Market
Technicians Association of New York.
RW: The San Francisco Technical Analysts
Association of San Francisco (TSAASF) is
one of the oldest technical analysis societies in the United States. What was themain purpose for establishing a professional body of technical analysis many
years ago, during the 1970s? On the East
Coast of the United States, where the MTA
was incorporated in 1973, several veteranmarket technicians have talked about theneed to create a professional community
for the sell-side securities community inWall Street. What was the story behindestablishing the TSAASF?

page 11

HP: The TSAASF was founded in 1970 bya group of inspired brokers, technical analysts, and money managers who felt they
could enhance the quality of their own
chart and indicator work through interacting and sharing with like-minded colleagues. From the beginning, the TSAASF
was dedicated to education. Soon thereafter, it became incorporated as a not-forprofit corporation under the laws of thestate of California. Happily, their tradition of monthly meetings in San Francisco
continues.
A curious coincidence: both the MTA andthe TSAASF were officially founded in
1970, but independently. However, the
TSAASF was founded several months
before the MTA. Those dates set the stage
for an interesting incident when the timecame for the founding of the International
Federation of Technical Analysts. The net
result was that the United States, at thevery founding of IFTA, was the only nation
granted the privilege of having two technical analysis societies.
A further picturesque story about thegrowth of TA education during the past
four decades is masterfully told by Bruce(and Ellen) Fraser in the video that waspresented during October 2013 at the IFTA
Conference in San Francisco. That video
was part of my IFTA Lifetime Achievement
Award and is available for your viewing.
RW: What is your perspective about theidea behind “Fusion Analysis,” in termsof combining thebest of both worlds,
technical and fundamental analysis?
HP: “fusion: 1. anact or instance offusing or melting;2 . a f u s e d m a s s;
3. The blending ofdifferent things into
one; 4. a coalition”(Ox ford English
Dictionary)“I was officiallytrained andserved as a photointerpreter in
the U.S. air force
during the Cold
Wa r. ... I w o u l dstudy aerial photographs to gain
an understandingof tendencies ortrends in aircraft
placement andmovement. Just
as with stock market charts, I would
study details on a
photo to discern
signs of tell-taleactivity.”

Fu s i n g t e c h n i c a lanalysis with fundamentals is a mistake. To paraphrase
the salty technician
Joseph E. Granville,“You don’t want tomix high oc tane
technical analysis with water, which is fundamental analysis.” Technical analysis is
forward-looking. For example, the S&P 500
index is a key component in the “Index of
Leading Economic Indicators.” That index
is looking out six months or more into the
future. On the other hand, fundamental
analysis focuses on company- and industryspecific economic and financial data, which
are mostly recent history. It becomes thenews followed by the mass of public. Thus,
TA and fundamentals are not two elementsthat should be blended together. TA isforward-looking; TA is discounting tomorrow’s news.

IFTAUPDATE 2014 Volume 21 Issue 1

RW: What is the best way to strike ahealthy balance of “Fusion Analysis”
bet ween technical and fundamental
disciplines?
HP: The best way to strike a healthy balance between technical and fundamental
disciplines is through a two-step filtering.
This is already a common practice on WallStreet. First, a list of acceptable industry
groups or common stocks that meet certain fundamental criteria or standards isgenerated. Then, a second step or filter
would subject the charts of these samegroups and companies to technical analysis. As a result, some stocks would be“technically” good or “okay to buy.” As
the Street has wisely said, “There is a goodtime to buy a mediocre company and a badtime to buy a good company.”
The best from both fundamentals andtechnicals can be obtained by maintaining
the integrity of each discipline. That canprobably be best accomplished by establishing a separate department devoted totechnical market analysis.
Moreover, a technical analysis astuteperson on a trading desk can become aportfolio manager’s most valuable ally.
Such a partnership would be anotherexample of the two-step filtering systemat work.
RW: How much value does the Wyckoff
methodology provide in the discipline oftechnical analysis? How could this benefit

many of our readers, members of technicalanalysis societies, and colleagues within
the financial industry around the world?
HP: The Wyckoff Method is a straightforward bar chart and figure chart analysis
of markets that understand that the mostreliable pathway to profitable decisionmaking is through a study of the actionof the market itself. The Wyckoff Method
is a guide to high-reward/low-risk trading
opportunities over a cycle of accumulating markup, distribution, and markdown.
The method emphasizes price and volume behavior and it has stood the test oftime. It seeks to interpret from the tape
and/or from charts the intentions of thesmart money, who were characterized by
Wyckoff as the “Composite Man” or the“Composite Operator.”
The Composite Man is on the other side of
the trade from the crowd of less informed
and less skilled investors. Wyckoff also
complements his grasp of the techniquesof market behavior (thus technical analysis) with a respect for the emotional andmental discipline.
Three basic laws, nine tests, and four
schematics are used by Wyckoff analysts to ascertain the current positionand probable future direction of a market. Most basic are the law of supply anddemand, the law of effort vs. result, andthe law of cause and effect. The first twolaws rely upon the bar chart, while the lawof cause and effect is dependent on thepage 12

figure chart. Then there are checklists ofnine buying tests and nine selling tests,
plus a host of basic principles dealing withsupport and resistance, trendlines, overbought and oversold conditions, absorption of floating supply, and an assortmentof helpful analogies to help the trader orinvestor cope with market action, money
management, and mental discipline.
I was attracted to the Wyckoff Method
a f te r h av i n g re a d Ed w i n L e f ev re’s
delight ful and insight ful book, The
Reminiscences of a Stock Operator.
Wyckof f codified the best prac ticesof stock operators of the early 20 thCentury. Most all of those same operators informed Lefevre.
L a t e r, T h o m H a r t l e, t h e e d i t o r o f
The Technical Analysis of Stocks andCommodities magazine, did a masterful job of interviewing me for an article
in which he clearly showed the Wyckoff
Method. More recently, the magazine
captured the essence of the Wyckoff
Method in another interview article, “WhyPattern Recognition is Important.”

practices the three mutually reinforcing
elements of behavioral systems building,pattern recognition, and mental/emotional
discipline. The Wyckoff Method plays acentral role in this scheme. It is buttressedby concepts and practices that include themodeling of crowd behavior and theaccessing by the trader of the appropriate
mental state for getting in, staying with,and getting out of a trade.
The mastery of all three aspects of theThree Skills of Top Trading makes theComplete Trader.

Hank (center), then IFTA vice chair, Americas, inSão Paulo in April 2003, with Martin Pring (left)
and then SAMT President Bruno Estier (right).
The trio went to São Paulo to vet the Brazil
technical analyst society for inclusion into IFTA.

RW: What is the key premise of your trading book, The Three Skills of Top Trading?

RW: How would you describe the evolution of technical analysis over the last few
decades in your career? Has the advancement from paper charts to computers
improved the way we analyze the markets?

HP: The key premise is thatto compete successfully inthe securities markets, theinvestor-trader must becomea C o m p l e t e Tr a d e r. A
Complete Trader learns and

HP: There has occurred a revolution within
and for the field of technical analysis. One,
it has gained acceptability amongst many
academics, most notably Dr. Andrew Lo at
the Massachusetts Institute of Technology.
Two, the computer has helped resuscitate

IFTAUPDATE 2014 Volume 21 Issue 1

charting and TA through widespread easeof usage and availability plus the capacity
to build and test systems. Three, behavioral finance concepts and procedures
have helped legitimize TA by providing itwith an underlying theoretical rationale.
Computers have made market data easier
to obtain and easier to analyze, but computers can’t do it all. Human judgment isstill the key component.
RW: What words of advice would you giveto the next generation of technicians andfinancial professionals?
HP: My advice to the next generationof technicians and financial professionals: get educated and get credentialed.
Higher education for TA has matured intosuch quality programs as the Graduate
Certificate
i n Te c h n i c a l“I appreciateMarket Analysis
the stimulation
at Golden Gate
and learning
University, whichthat come withis now available
thinking, teaching,
online aroundand travelling.
the globe.
Thinking is
Professional
expressed throughpostulating ideas
certifications
about the market,
l i ke t h e CF Te
verifying thoseand MFTA haveideas throughbecome necesmarket action,sary tickets forand then writing
job placement,
about my findings
advancement,
in practitioner
publications likeand profitable
the SAMT Journal.”
performance.

Also remember that “Right Brainers” mayrule the future. Hence, keep up the nitty
gritty practice in the market to get andhold an almost intuitive feel for its actions.

page 13

For additional information about Henry(Hank) O. Pruden, Ph.D., go towww.hankpruden.com.
https://www.facebook.com/HankPruden

RW: On a personal note, tell us a little
about a day in the life of Henry Pruden.
What are your passions and inspirationin life?
HP: On a personal note, I appreciate thestimulation and learning that come withthinking, teaching, and travelling. Thinking
is expressed through postulating ideas
about the market, verifying those ideas
through market action, and then writing
about my findings in practitioner publications like the SAMT Journal. Teachingallows me to preach what I practice whileat the same time keeping me in contact
with the younger generation. Travelling out
of town to such places as Paris, Geneva,
Milan, London, and Zürich brings one into
contact with the people who are making
things happen in the world. On many of
those trips and for my writing and teaching, I like to include my best friend and mylove for practically 50 years, my dear wife,
Sarah Pruden.

Sarah Pruden (Dr. Pruden's Wife)

To contact the author of this interview:
Ron William, CMT, MSTA. ronwilliamPR@
gmail.com, www.ronwilliam.com

All content may not be copied without
the express permission of The Swiss
Association of Market Technicians (SAMT),
which reserves all rights. Re-use of any of
the content for any purpose is strictly prohibited. © The Swiss Association of Market
Technicians, 2013. ll rights are reserved.

IFTAUPDATE 2014 Volume 21 Issue 1

page 15

Education Lounge
How to Confirm Elliott Wave Counts With the
Fibonacci Strange Attractor Model
By Julien Camberlin, CFTe, MFTA, CEWA Level 1, member of SAMT

Abstract
Chaos Theory and fractals have developed over the last 40 years but withlittle practical use for technical analysis.
The purpose of this paper is to introduce a new concept about Fibonacci
ratios—the Fibonacci Strange Attractor
Model—based on Chaos Theory and fractals. This model will fit the repartition ofratios between Elliott Waves from historical charts. It will help to revise Elliott
Fibonacci guidelines and Fibonacci ratios
to propose a complete tool to confirm
Elliott Wave counts.

Literature review
1. Elliott Waves
In 1934, R.N. Elliott discovered that financial markets organize in waves that are selfsimilar patterns (see Figure 1), respectingof a same degree, though henever set up clear rules forusing the Fibonacci relations.

1
(5)
5

3

(3)

2

1

5

4

(B)

4

C

1

B

A
2

3

3

2

A
1

(1)

4

5

B
C

(4)

(A)

4
1

B
2

3

3

A
1
4

2

C

(2)

Elliott Wave
self-similarity

certain rules and guidelines. This was thefirst idea of fractals in the financial markets. In 1946, he discussed for the first time
the Fibonacci relations in financial markets.
Elliott noted that the Fibonacci ratios
appear quite often in the relation between waves(C)2

2. Multiple wave relationship
In Elliot t Wave Principle,
Prechter and Frost presented
a very smart system of multiple wave confirmation called“multiple wave relationships”.1
This system proposes that, as
all levels of waves are developing at the same time, theends of waves of different

levels could then be forecast with concentrations of Fibonacci ratios. They recognized that “If a complete method of ratio
analysis could be successfully resolved
into basic tenets, forecasting with the
Elliott wave principle would become morescientific”.2
3. Chaos Theory
Markets are chaotic, meaning that they are
non-random, but also non-linear systems.
There is no unanimous definition for chaossystems, but among the different points
defining it are:• Sensibility to initialcondition s: T his isIFTAUPDATE 2014 Volume 21 Issue 1

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Education Lounge

How to Confirm Elliott Wave Counts With the Fibonacci Strange Attractor Model (continued)

Table 1 shows the different information
about the sets of data of historical ratios:(A’,t’)

Ratio = absolute value of((end of 2nd wave - start of 2nd wave) /(end of 1st  wave – start of 1st wave))

2. Fractals
To draw a f rac t al f inancial char t as
Mandelbrot explains it,3 a start point andan end point are needed (see Figure 2).
In fact, if end point (A’,t’) is not known,
it is not possible to draw the fractal. Thismeans that in financial markets, the end
point must also exist. This point is the(A,t)

strange attractor. In a chaotic system,
the strange attractor is the set where thesystem is in equilibrium.

Pivot points
121
76
211
70
90
100

Total

Leading/Ending
Diagonal

End date
18-Feb-11
2-Feb-66
1-Feb-12
15-Jul-08
22-Aug-11
4-Mar-11

Impulse X5

Start date
24-Mar-00
22-Oct-57
19-Apr-95
26-Oct-00
21-Sep-99
12-Dec-00

Impulse X1

MarketS&P500DJIAUSDJPYEURUSDGold
Cocoa

Impulse X3

Table 1

Methodology
1. Set of data
Six markets have been chosen: two currencies, two indices, and two commodities.
Elliott Wave counts have been done on
daily and weekly charts following Elliott
Wave rules and guidelines described in
Elliott Wave Principle (e.g., channeling,alternation).

Figure 2

Triangle• Memory effect: Past movements influence
future movements, which is not the casein random systems.
• Strange attractors: In most chaotic
systems, complex attractors called strange
attractors are found. Strange attractors
are attractors with more complicatedstructures and are considered the limitof the system.
• Fractal: Chaotic systems organize mostof the time in fractal sets. B. Mandelbrot
gave the name fractal to the mathematicalsets that have self-similar patterns: theylook the same whether from near or fromfar (see Figure 1). The Fibonacci ratio isin fact the basis of the concept of selfsimilarity: it is the perfect growth ratio.

Ratio calculation
Fibonacci guidelines compare the ratio ofadjacent or alternate waves to Fibonacci
ratios. Price ratios are calculated on arithmetic scale, not logarithmic or percentage,
which means that the calculation will bedone this way:

Correc�ve 3 waves

the butterfly effect, meaning that a smallchange in initial conditions can completelychange the results after some time. The
model will progressively deviate.

26
55
11
10
18
15

1
4
0
0
3
0

12
17
10
6
7
8

2
1
0
0
1
3

0
1
5
2
1
0

1
1
1
1
2
0

668

135

8

60

7

9

6

A financial market is in equilibrium whenbuyers and sellers are in equilibrium. This
is at the end of a wave (top or bottom),when price changes direction, and this iswhere we can find the strange attractor.
Each wave at every degree has its own
strange attractor. Every degree of Elliott
Wave develops at the same time (e.g.,
Minuette, Minute, Minor); waves develop
moving to their final strange attractor.
When the attractor is hit, the wave iscompletely developed, the equilibrium
between buyers and sellers is done,
and the price can change direction. Thismeans that the price is not stopped by
Fibonacci ratios but rather vibrates in the
direction of it.

IFTAUPDATE 2014 Volume 21 Issue 1

page 17

Education Lounge

How to Confirm Elliott Wave Counts With the Fibonacci Strange Attractor Model (continued)

3. Fibonacci Strange Attractor Model(called later FSAM)
To calculate the model, the following
arithmetic operations from the Fibonacci
ratios suite are done: addition, subtraction, division, multiplication, exponent,
square root, inverse, and opposite. This
calculation has not been represented
on a chart without limit, but a maximumof three combinations have been set.
Figure 3 illustrates the results. Insteadof a random repartition, a fractal repartition of the ratios appears. As statedearlier, strange attractors are fractals.
This model is the spectrum of the strange

attrac tor that is in force in financial
markets.
The model has two kinds of ratios: ratiosthat are the Fibonacci suite in blue (…,.382, 0.618, 1, 1.618, 2.618,…), which wecall Fibonacci ratios, and clusters of ratios
in red that are between the Fibonacci
suite, which are formed by echoes of
the Fibonacci ratio (.447, .472, .486, .5,.514, .528, .553, .724, .764, .786 …) andwill be called derived Fibonacci ratios.
The Fibonacci ratios have much higher
importance than the derived Fibonacci
ratios. Ratio .50 is actually not a precise

Figure 3

Fibonacci ratio but a cluster from .447 to.553. Concerning the question about theratios .724, .764, or .786, it is also a cluster of different ratios between .724 and.809 and the inverse is between 1.236 and1.382. This means that for practical use,
we will allow more uncertainty for 50% or
76.4% retracement than for 61.8% or 38.2%
retracement.
We can summarize the results as: .236,.382, .447, .472 to .528, .553, .618, .724,.764 to .809, .854, 1.000, 1.171, 1.236 to
1.309, 1.382, 1.618, 2.00 to 2.058, 2.236
and 2.618.

4. Validation of the model
Different analyses have been performed tovalidate the model. One of these analyses
compares the FSAM to the statistics of
the wave ratios, as illustrated in Figure 4.
There appears to be a strong correlation
between the two curves.
5. Synthesis of the guidelines
With the confirmation of the model andthe revised guidelines, the Fibonacci tools
can now be constructed (Figure 5). The
proposed Fibonacci tools are in line withactual guidelines proposed in Elliott Wave
Principle4 but are more accurate.

Figure 4

Fibonacci Strange A�ractor Modeloccurence of the ra�os
16

12

Fibonacci Ra�os
Derived Fibonacci Ra�os
10

MM3 Model

128Occurence

10

8

6

6

4

4

2

2

0
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
85
90
95
100
105
110
115
120
125
130
135
140
145
150
155
160
165
170
175
180
185
190
195
200
205
210
215
220
225
230
235
240
245
250
255
260
265
270

Occurrence

14

0
0

Ra�o (%)

10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 190 200 210 220 230 240 250 260 270 280 290 300

IFTAUPDATE 2014 Volume 21 Issue 1

page 18

Education Lounge

How to Confirm Elliott Wave Counts With the Fibonacci Strange Attractor Model (continued)

Conclusion

Figure 5

Retracement of wave 1 by wave 2

With our new concept of the Fibonacci Strange Attractor Model, we haverevisited the existing guidelines to statistically confirm it, revise it, or
conclude that it is used infrequently. With these revised guidelines, wehave built our Fibonacci tools, which are of great use for validating Elliott
Wave counts. We have clearly presented on how to use Fibonacci ratioswith Elliott Waves, confirm existing counts, and forecast price targets, aswell as giving limits to Fibonacci ratios due to fractal repartition.

1 or A

Retracement of wave A or W
by wave B or X

A or W

0.0

0.0

23.6

23.6

2 or B

38.2
44.7
47.2
52.8
55.3
61.8

38.2
44.7
47.2
52.8
55.3
61.8

B or X

It could be very useful to study the ratios between Elliott Waves over time,
given that price and time in markets are related. This could be interesting, particularly for confirming waves when price ratios still allow different
ways to count waves.

100.0

0

72.4
76.4
80.9
85.4

72.4
76.4
80.9
85.4

117.1
123.6
130.9
138.2

100.0
161.8 MAX

0

About the Author
As an Elliott Wave specialist, Julien Camberlin has developed new ideas
about how markets behave according to Elliott Waves, Chaos Theory, andfractals. His studies explain that prices are not stopped by Fibonacci ratios
but rather are attracted by them and vibrate in their direction, according
to the fractal model. This allows for a better understanding of Elliott Wave
formation, enhancing its use for better performance. Julien Camberlin is
now looking for new professional challenges.

Relation between wave 5 and wave 1

PRECHTER, R., FROST, A.J., Elliott Wave Principle, Tenth Edition, New Classics
Library, 2005, p. 145

2

PRECHTER, R., FROST, A.J., Elliott Wave Principle, Tenth Edition, New Classics
Library, 2005, p. 146

3

MANDELBROT B., HUDSON R.L., The (Mis)behaviour of Markets: A Fractal View ofRisk, Ruin and Reward, Profile Books, 2010, p 210-211

4

PRECHTER, R., FROST, A.J., Elliott Wave Principle, Tenth Edition, New Classics
Library, 2005

Relation between wave C and wave A

3

C or Y

261.8

223.6
205.8
200.0

5

61.8
72.4
76.4
80.9
85.4

4

161.8

138.2
130.9
123.6
117.1

223.6

100.0

205.8
200.0

117.1
123.6
130.9
138.2

161.8

100.0

161.8

200.0
205.8

85.4
80.9
76.4
72.4

223.6

61.8
55.3
52.8
47.2
44.7
38.2

3

Bibliography
1

Relation between wave 4 and wave 2

261.8

138.2
130.9
123.6
117.1

261.8

0.0

A or W

1

4

100.0
85.4
80.9
76.4
72.4

1

61.8
55.3
52.8
47.2
44.7
38.2

2

23.6

2
0

Relation between alternate waves
in a contracting triangle
Relation between C and A

00

Relation between alternate waves
in a contracting triangle
Relation between D and B

B or X

0.0

Relation between alternate waves
in a contracting triangle
Relation between E and C

IFTAUPDATE 2014 Volume 21 Issue 1

page 19

Education Lounge

Leveraged Trading With Calculated Risk Management Based on the
Point and Figure Method Considering Volatility
By Claudia Jankewitz, CFTe (VTAD)

Very often, the point and figure method isthought to be too slow and inert for more
dynamic trading. Whereas some want totrade faster, I prefer to trade more efficiently. Therefore, I use leverage in mytrading. My point and figure analysis starts
with the underlying assets by taking thevolatility into account and then calculating
the risk on the leveraged instrument.
Hardly anyone believes that one can be a
successful trader with point and figure endof-day data while using leverage. Critics
claim either the entry or the exit signal
will come too late by using this method.
To prove the critics wrong, I will introduce
you to my way of working with the pointand figure method with leverage.

It all comes down to thebox size
It is already proven that standard pointand figure works well. Usually, the standard char ting technique for the box
size is the chartcraft scale, named afterChartcraft Inc. who popularized the systemin the 1940s. The standard scale changes
the size of boxes with increasing price. As
such, the increase is albeit in a staggered
way. To avoid this, one can simply use acertain percentage for the box size. The
key question here is: Which percentage
is the right one?

The “right” box size
Using a percentage scale equates to alogarithmic chart in the classic technicalanalysis using a bar or candlestick chart.
As you know, the point and figure method
ignores passage of time. Some traders still
like to treat a point and figure chart witha kind of “time indicator” by using different percentages to display different timespans—like 2% for long-term investingand 0,5% for short term.
But still, using just any percentage would
not take the volatility or the momentumof a stock into account. You might still bein for a roller coaster ride with a highly
volatile stock, getting in and out too fast
without making any profit at the end of
the day (or year).
Since I am a trader using leverage, I still
had to look for another way to “twist” thebox size for a proper way of construing a
reliable trading system while using thebest of two worlds: employing the simple

and effective signals of point and figure
and using leverage with managed risk.
Additionally, since I am an analytical andpractical person, I prefer to have a simple,
systematic approach to my trading.
Therefore, there had to be a way of displaying a more dynamic stock in a different
but comparable manner than a less volatile
stock. I wanted to have a systematic wayof scanning any underlying assets, picking
the derivate, and determining the stop
loss. Then, you place the order and off
you go, enjoying life while the markets
do their work.

With an annual volatility, you get a good“feeling” for the average movement of theunderlying assets. This setting is quite useful for position trading for 3 or 4 days oreven a few weeks. For a shorter time span,
reduce the number of trading days for thevolatility tracking accordingly.
Once you know the volatility of the underlying assets, you can use the following
chart:Taking volatility into account
One has to adapt the box size for the different volatilities of the charted securities.
There are many ways to calculate volatility,
but usually you can get this information
straight from good charting software.
Because volatility is a measure of thevariation of price of a financial instrument
over a period of time, one has to assign
a certain time span upon which the volatility has to be measured. For instance,
you track the annual volatility using 252
trading days.

Explanation:
Any volatility up to 8, use 0,5% box size.
Volatility greater than 8 up to 16, use 1%.

IFTAUPDATE 2014 Volume 21 Issue 1
Leveraged Trading With Calculated Risk Management (continued)

For example:
The underlying assets have a volatility of
20, then use 2% box size. As such, you cansort your watch list according to the volatility and concentrate afterwards on the
point and figure signals. Focus on strong
signals when using leverage (e.g., thebullish triangle, a triple top after a broadcongestion area). Even though a point andfigure chart is always either bullish or bearish, but never neutral, I want to note for thesake of completeness that you should trade
only buy signals above a hausse-supportline and a sell signals below a resistanceline. Therefore, no guessing is required,but plain, simple signals give us the green
light for the trade.

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Education Lounge

P&F Chart S&P 500, 2% log scale, 3box reversal

Vertical price objective = Value of the Low+ (Number of Xs x Reversal x Box size)(bullish)
Vertical price objective = Value of the High- (Number of Os x Reversal x Box size)(bearish)If you use a log scale, you have to calculate
the vertical price objective as follows:
Vertical price objective = Value of the Low x(1 + Box size / 100) ^ (Number of Xs x Reversal)(bullish)
Vertical price objective = Value of the High x(1 - Box size / 100) ^ (Number of Os x Reversal)(bearish)Simple rules and simple signals
Whereas with “simple” I do not necessarilymean the simple buy and sell signal that
occurs on a double-top or double bottom. I appreciate the “no-fuzz”-methodof point and figure. The straightforward
rule for drawing a trendline at a 45-degree
rise starting below a low or fall startingabove a high allows no room for individual
likings. The buy and sell signals are easy
for capturing chart patterns, the stop loss
is easy to define, and the calculation forthe price objective is simply put. That’s it.

Price objectives
As you know, there are two methods fordetermining the probable distance ofa move, often referred to as the price

Please consider these price objectives asrough guides only. These targets are rarely
hit exactly, but if you get more than one
trading candidate, you want to pick themost promising one by calculating the
profit–loss ratio. For this, you need the
profit target as well as the stop loss value.

Using stop loss
objective or “price target”: the horizontal count and the vertical count. Always
remember that the move can be containedby the trendlines.

Although the method for the horizontal
count is clearly stated, it still leaves room
for interpretation regarding the width of thebase. Therefore, I use the vertical count only.

When trading using leverage the question is always: Shall we use the underlying assets for the risk management or
the financial instrument, like the option
or knockout certificate? My answer is: Bothin their own way.

IFTAUPDATE 2014 Volume 21 Issue 1

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Education Lounge

Leveraged Trading With Calculated Risk Management (continued)

The underlying stop loss
Analyzing the underlying assets for the
profit and stop loss will give me the profit–
loss ratio. Once I have reasonable room tomove and a considerable loss-risk, I am
willing to take the trade.
In general, you place the stop at the level
where the reversal or the double top/bottom would actually occur.

Therefore, I use the following strategy:
Once I find my stock to trade and determine my stop loss, I choose the knockout
certificate. The stop loss level represents
the knockout level. This is my first “cushion” for money management.

This stop can be used as your knockout
level, for example.

Once I choose the certificate, I will analyze
it in a new point and figure chart according
to its volatility. Most of the time the volatility of these instruments is very high, so I
use a bigger box size, like 5% or even 6 %.

The leverage stop loss
Sometimes the stop loss is a bit too far,
especially if you trade using leverage. Thislevel could bear a risk too big to take.

Defining the risk
Now you can determine the risk explicitly:
Either you use the usual stop loss in the
point and figure chart or you use a certain

number reversal, like three boxes or less.
You can place this stop order in your orderbook.
If your charting software does not display
the leverage instrument, specify for yourself a certain percentage you are willing tolose in case your trade goes against you.
As such, you can subtract that amount fromyour leverage premium.
Trailing stop
Certainly, you can use trailing stops withthe point and figure method. Simply checkyour chart on and off and adjust the stop
loss accordingly. This is easy to do, especially when you use a certain amount ofreversal. Count the boxes and place the
new stop order, or put a direct trailing stop
loss in your account.

Conclusion
With this method, you avoid the problem
of noise or whipsawing in a double feature:
first by using point and figure and tracing only significant price movements, andsecond by sorting the underlying assets
according to their volatility.
Via clear and effective buy and sell signals,
you find your trading candidate. With precise price objectives and stop loss levels
you can define your profit and loss chances
as well as your knockout level in case you
choose to trade knockout-certificates.
P&F Chart S&P 500, 2% log scale, 3box reversal, example of buy signal, stop loss and support

By analyzing the leverage instrument again
according to its volatility with point andfigure, you get a clear picture for your stop
loss on your instrument.

Bibliography
Du Plessis, Jeremy: The Definite Guide to Point
and Figure, Harriman House Ltd., 2nd edition, 2012
Dorsey, Thomas: Sicher Anlegen mit Point &Figure, Finanzbuchverlag, 2000
Weber Heinrich & Zieg Kermit: The Complete
Guide to Point-and-Figure Charting, HarrimanHouser Ltd., 2003

About the Author
Claudia Jankewitz is a
Certified Financial
Technical Analyst (CFTe)and a member of the
VTAD. She has her own
company—Claudia
Jankewitz Finance. For
more than 15 years she has been activein the stock market. She lived andworked in Malaysia for more than 10
years and has been back in Germany
now for 7 years.
Her special fields are the point and figure
method and leveraged trading, such as
options and knockout certificates. She
is the author of two trading newslettersfor leveraged trading. For more information see www.claudia-jankewitz.de andwww.optionentrader.info.

IFTAUPDATE 2014 Volume 21 Issue 1

page 22

The wisdom and strength of the IKH by Mario K
Education
LoungeThe Wisdom and Strength of the IKH
By Mario Kfoury, CFTe, Lebanese Society of Technical Analysts

Before we start delving into the subject of
the Ichimoku Kinko Hyu, we ought to put
it in the right historical context, describing how it came into creation and the wisdom, astuteness, and farsightedness of its
designer. Like the cardiologist or seismologist, the technical analyst studies and analyzes the financial charts, trying to detect
subtle movements that have predictive
values. Some cycle analysts studied thebeats of the heart and compared them tothe different cycles and waves in natureand financial markets.1
There are three types of technical analysis:classical, mathematical, and cyclical. It would
be realistic to classify the IKH belonging to
the last two—calculated with mathematicalformulas based on cyclical theory.
Although the recorded history of technical analysis seems short, people likePythagoras, Leonardo Pisano, and Leonardo
Da Vinci, among others, discovered formulasand proportions in nature and used themin mathematics, sciences, arts, and various
disciplines. In 1585 public quotes, over 300
items were traded in the streets and coffee
shops of Amsterdam, and in 1608, in one of
the greatest and earliest exchanges—the
J.M.Hurst “Profit Magic of Stock Transaction Timing”(1973); Tony Plummer “Law of Vibration” (2013).
1

Amsterdam Exchange—the “Beurs” wasborn. It became most famous later on for
the “Tulip Bulb Mania” of 1636–1637. In the
18th century, a Japanese rice commodity
trader named Munehisa Homma (1724–1803)
started recording the price of rice according to what we know as candlesticks (thefirst recent recorded history of technicalanalysis rules), and prices in the West werebeing recorded under the point and figure
chart formats. It wasn’t until 1884, whenCharles Dow founded the Dow Theory andintroduced the first ever stock market index,
that modern technical analysis was born.
In 1939, Mr. Goichi Hosoda, a Japanese
economy journalist, started running tests
and calculations over a period of morethan 20 years with the help of a numberof his assistants, to come up with a trading
system in 1968 that he called the Ichimoku
Kinko Hyu, meaning equilibrium chart at a
glance. The application offers multiple tests,
mainly through three indicators, and thus
gives three different signals on one chart.
However, it yields much more information
for the skilled and seasoned analyst.
Moving averages have been used in statistics, rocket science, and artillery since
the beginning of the 19 th century, but theirapplication to the stock market came later,

between 1930 and 1960, when many typesof moving averages were calculated from
simple, exponential, triangular, weighted,
and adaptive to displaced… The latest
is one of the most important aspects of
the IKH for cycle isolation as well as for its
role reversal as support and resistance, as
it is—along with the MA crossovers andthe “4-week” rule promoted by Richard
Donchian across the Pacific—approximatelyaround the same time and era of the basic
founding principles. Similarities also exist
between the Kumo cloud and the famous
MACD introduced by Gerald Apple in the
1970s, and are yet more proof of the ingenuity and wisdom of the IKH’s inventor atthat time, in addition to many other features
and advantages never presented or applied
before, all in one system!
Since the IKH was initially built and tested
using daily charts, it shows us the pricetoday in relation to 26 periods (days) in thepast (4 weeks) with the Chikou Span, as well
as 26 periods (days) into the future (4 weeks)with the Kumo. What theses 26 past andfuture periods are initially telling us on thedaily chart, is that the price today is higher,
lower, or equal to the price 26 periods ago
and in relation to the future, according to
the 4-weeks rule Mr. Donchian promoted

Before w
Kinko H
how it cfarsighte
seismolofinancial
predictiv
the hearwaves inatMagic
the sametime Transaction
in his commodity
futuresof Stock
Timing”(1973), Tonytrading system. Additionally, the cloud is
There are 3 types of Technical Analysis: Classical,
offering
andclassify us
thetrend
IKH definition
belonging tothesupport
last two; calcul
andresistanceinthepresent(TenkanSentheory.
and Kijun Sen) and the future (The Kumo)
according to the role reversal qualities (supAlthough the recorded history of Technical Analy
port becomes resistance and vice versa)
Pisano and Leonardo Da Vinci to name a few, discof the moving averages by projecting thethem in mathematics, sciences, arts and various
Senkou Spans A and B into the future. A
were traded in the streets and coffee shops of Ams
volatility measure is also offered relative
exchanges, the Amsterdam Exchange, the “Beurs”
to the cloud thickness or narrowness, and“Tulip
Bulb Mania”
While
in my humble
opinion,ofan1636-37.
interactive
sortin the 18
of Munehisa(1724-1803)
ofnameMACD
integratedHommain the cloudwith allstarted recascandlesticks
(the
first
recentrecorded
the MACD features (MACD line, signal history obeing
recorded
under the Point
and Figure chartline,
middleline, histogramand crossoverfoundedthe
Dow
Theoryandintroduced
rules, convergence/divergence not so clear the firstIn 1939ofMr.Goichi
Hosoda,ofa theJapanese
becausethe displacement
cloud econom
during tomorethan 20with thein help
relativethe price)
willyears
be clarified
my of a nu
system explanation.
in 1968 he called
Ichimoku
ensuing
All the themovingaver- Kinko H
agecalculationsin the
IKH aretests
basedon theapplication
offersmultiple
mainlythrough thr
50%
retracementof theirit chosen
periods
on onechart. However,yields much
more inform(Highest High + Lowest Low/2); therefore,
Movingaverages
been Senused(26)
in statistics,roc
theTenkenSen (9) haveand Kijunareth
19 century
but their
application
to theactinglike dynamic
interactive
weeklyandstock mar
types of50%
MA retracements
were calculated,onfrom
monthly
the simple,
daily expone
The latest
one ofhigher
the most
importantchart,
but ofismuch
valuebecauseaspects oftheTenkanand Kijun
Sen are calcureversal
asSen
supportand resistance,
as it is along
latedon
weekly(9periods)
andmonthlypromoted by Richard Donchian across(26the Pacificperiods)
bodies ofprinciples.
data. ThisSimilarities
equates to also
itbasic founding
exist
being
a moving
appliedintroducedby average
Gerald Applein on
theweekly
1970’s and are
anddailybesides
chart, many
themonthly
IKH’s candles,
inventorbut
at onthatthetime,
applied before, all into one system!

IFTAUPDATE 2014 Volume 21 Issue 1
The Wisdom and Strength of the IKH (continued)
providing more relevant and reliable support and resistance than normally designed
moving averages. The Senkou Span B, andespecially its 26-period projection forward,is laying for us a 2-month, 50% retracement
ahead, acting like an MACD middle line in a
dynamic interactive way relative to the priceand the Senkou Span A, which is an averageof the averages (same principle as the MACDline). The calculations of the Senkou Span
A and MACD lines are similar in principle,
as they both are averages of the moving
averages—one calculated by addition anddividing by 2, and the other by subtraction.
Their ensuing result is pretty close (17.5 for
the Senkou Span A = Tenken Sen + Kijun
Sen/2 and 14 for the MACD = 26 EMA – 12
EMA). Moreover, the cloud thickness acts
like an MACD histogram and is indicative of
volatility, while its twist is similar to a crossing of the histogram above or below the
middle line. The overall advantage of the
IKH, in general, and its Kumo, in particular,
are all the aforementioned features plus theirdirect application over the price, making the
IKH a highly integrated, interactive, dynamic
sort of MACD with all the signals relative to
Gerald Apple’s application, moving averagerules, 50% retracements of different periods,
and Richard Donchian’s 4-week rule, plus
two additional features:—trend definition
and future support and resistance.
Until you gain a better understanding of
the founding principles of the system, theIKH lends itself quite easily for use at alllevels; in its most basic interpretation, one
first starts defining the trend in his chosen

timeframe (above, below, or within the cloud).
Subsequently, any confirmation signal fromthe upward crossover of the moving averageand the Chikou Span when the price is above
the cloud is a good buy signal, while if theprice is below the cloud, it is a weak signal.
Any short signal, such as downward crossoverof the moving average and the Chikou Spanwhen the price is below the cloud is a goodshort signal; if the price is above the cloud, it
is considered a weak signal. Finally, any longor short signals when the price is within thecloud are deemed neutral.
Like many aspects of the Japanese culture,
the IKH bears a lot of wisdom and strength
in its conception, and one stands in owe
and admiration, after so many years, to thatJapanese man’s vision and forethought.
While wishing you all safe and happy trading, we can never do enough by reminding
you of the market’s hazards and vagaries,
and that to be a successful trader, two main
qualities are of necessity: humility and an
immeasurable thirst for learning.
Namastepage 23

Education Lounge

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About the Author
Born in Beirut, Lebanon, Mario G. Kfoury,
CFTe, holds credentials in technical analysis,
physical education, martial arts instruction, andreal estate; he is also a multi-engine IFR pilot.
Self-taught in the streets of Beirut, Brussels,
and New York, he synthesizes his view andexperience in life through different cultural anddisciplinary prisms that lead, in his opinion, toa peaceful and humanitarian way of life.

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IFTAUPDATE 2014 Volume 21 Issue 1

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Education Lounge

Stop and Risk Management in Daily Trading
By Konrad Kleinfeld, CFTe

A trader as risk manager
In today’s markets, a successful traderis also an excellent risk manager. This
includes having a combination of money
management skills as well as technical analysis expertise. In this educational article,
we will revisit basic risk management tools
and then focus on stop orders to protect
a trading position.

Evolution of the risk management profession
Risk management techniques as a management function in financial institutions
and capital market front offices has grownsteadily in size and importance over thelast 30 years. Over the last 15 years, inparticular, global financial markets haveshown that advanced risk management
skills and tools are not only a can but
a must. Overall, financial markets havetaught us that risk management, especiallytoward the higher moments of a return
distribution (“tail risk events”), is a necessity and requires tight monitoring and theuse of intelligent stop orders.

Facing different sources of risk
First, we have to admit that there is noperfect and absolutely satisfactory rule.

However, stops can be an important way tomanage positions and limit losses—keeping
in mind that an investor still faces the risk ofslippage (i.e., the difference between the
expected price of a trade and the price atwhich the trade actually gets executed).
Overall, in today’s markets, numerous risks
are associated with trading, such as market
risk, credit and counterparty risk, liquidity
risk, and operational risk.
Market risk is the most obvious, as it arises
from movements in prices of an underlying
asset in financial markets. We will focus on
this later and introduce trading stops basedon technical analysis.
Credit risk refers to the risk that an issuerof a debt instrument will default, but it also
can include critical issues such as counterparty risk (i.e., the risk that a counterparty
with whom a trader has dealt will cease
trading, making recovery of funds owed
very difficult). Credit risk might also include
force majeure risk (natural and unavoidable
catastrophes) but also sovereign risk andmarginal risk.
Liquidity risk mainly comes from twosources: 1) a trader running into an illiquid

trading positioning, meaning that he has
to sell a position due to margin calls orother financial commitments, and 2) due
to decreasing market volumes traded ora decreasing number of counterparties,
the liquidity for an asset to trade becomes
too thin to allow fair and efficient trading.

Knowing an asset’s return distribution
moments (i.e., mean, variance, skew, andkurtosis) is therefore key, as it enables a
trader and risk manager to match the usedrisk management tools with the required
asset’s risks, not only on an individual
basis, but also in overall portfolio context .

Lastly, operational risk includes all risks
associated with nonfinancial matters, suchas fraud, trading or settlement system failure, other accidents, and ethics.

Order and stop loss management

Digging deeper into the different subsets
of risk associated with being a trader isbeyond the aim of this article, however,
but will be part of future periodicals.

Money management as
starting point
Money management stops are usuallyassociated with cutting a position’s size,or even the entire position given a particular level of P&L drawdown, such as 2% oftrader’s equity with a single trade. There
are also fundamental approaches, such as
Value at Risk (V@R), variance-covariancemodels, maximum draw-down, or evenmatching a risk management tool on aparticular moment of return distribution.

Order and stop order management within
the money management discipline is often
associated with three relevant steps:
1. Determining your own maximum
acceptable loss.
2. Setting a stop loss order at a psychologically
relevant support level.
3. Adjusting this level from time to time
What sounds obvious can be a real issue
in daily application. Depending on its purpose, today ‘s trader can choose between
different types of stopping out their market position. Techniques might include
preventive stops, trailing stops, and socalled emergency stops.

Types and purpose of a stop order
Preventive or protective stop means that
if the market goes against a trader's forecast, one is quickly cutting losses (given a

IFTAUPDATE 2014 Volume 21 Issue 1

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Education Lounge

Stop and Risk Management in Daily Trading (continued)

specific individual loss sensitivity) to prevent
cutting too quickly or too early. Preventive or
protective stops are often set and defined ina trader’s log before entering a position andare effectively placed in the order book after
entering the underlying position.
Alternatively, a trader can use trailing or
progressive stops (in absolute or relative
terms to current asset price) to protect trading profits. Trailing or progressive stops areplaced and adjusted when the market ismoving in the trader’s direction. Typically,a trader is using an absolute or percentage
band around the current price of an underlying asset to set the stops. There are also
ways to use Welles Wilder’s Parabolic SAR(stop­and-reversal) to optimize trading exit
points (i.e., closing out and even setting ashort position when a particular price levelis reached). Trading or progressive stops are
frequently used in momentum markets andcan be continually adjusted for an underlying asset’s volatility (such as via Bollinger
Bands). The very charming pro argument for
those kind of stops is that they adjust fromtime to time and therefore, best match theeverchanging behaviour of markets per se.
This is particularly true when using volatility (second moment of return distribution)
within the Average True Range (ATR) indicator and multiplying a period’s asset volatility
by a set factor to determine stop levels.
In some literature, you can also read about
so-called emergency stops, which might set

a particular stop at a fixed level (in terms oftrader psychology, this might be the entry
level plus transaction costs), so there is noneed to wait until the protective stop is hit,
but a position is closed or reversed when
this emergency stop is hit. This is particularly
true in sharp turnaround markets, where themarket is quickly forming a reversal and a
trader does not want to wait until the preventive or trailing stop is reached. Given thehigh trading volumes in a sharp market fall,
this could help to avoid slippage, especiallyaround psychologically important price levels(e.g., stops set around numbers). As you cansee, this emergency stop is not a mechanicalmethod at all but rather follows a trader’sown discretion.

Conclusion
Trading in today’s markets requires eachtrader to not only work on his or her trading
skills but also to be a good risk manager,
keeping up to date with the latest risk andmoney management tools and adapting those
tools to markets’ everchanging moments ofa return distribution. Given each trader’sindividual level of risk and loss aversion, you
can use different ways to place stop orders
and keep track of your own level of trading
aggressiveness and profitability targets.

Bibliography/Suggested Reading

About the Author
Konrad Kleinfeld, CFTe member of VTAD (Vereinigung Techni scher Analysten Deutschlandse.V.), is a vice president at a global investment bank. He also holds an MBA from Cass Business
School in London and is a CFTe charterholder. He is a regular speaker at VTAD’s annual
technical analysis conference and a part-time lecturer in economics at the Frankfurt Schoolof Finance and Management.

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Offered Year-roundSee our website for further instructions www.ifta.org/certifications/registration/.
Syllabus and Study Guide for exams to be taken through 30 September 2014:
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For more information on the CFTe program, visit http://www.ifta.org/certifications.

Master of Financial Technical Analysis (MFTA)
MFTA Alternative Path
Pre-Application deadline

28 February 201431 July 2014

Choudhry, Moorad (2006). An Introduction to Bond
Markets, chapter 14 risk management, 3rd edition,
John Wiley & Sons, Ltd.

Application/outline deadline (if approved)

2 May 2014

2 October 2014

Paper submission deadline

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15 March 2015

Edwards, Robert D. and Magee, John (2001).
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IFTAUPDATE 2014 Volume 21 Issue 1

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Education Lounge

CALL—Wyckoff for Smart Money Timing
By Hank Pruden, Ph.D., Golden Gate University and the TSAASFCALL is a case study applying the principles of technical analysis found in the
Richard D. Wyckoff Method. See Figure 1
for a bar chart of CALL and Figure 2 for apoint and figure chart of CALL.
In Figure 1, the technical analyst canidentify a base of accumulation taking
place during 2013 and 2014 as the stock
moved sideways between a line of support near $11 to $12 and resistance around$16 to $18. During that period, the public investors and traders were fearful anddepressed. But, on the other side of the
trade, the “Smart Money” or Wyckoff’s“Composite Man” was buying on balance. For example, the “Smart Money”
would sell 10,000 shares when the stock
in CALL neared $16 to $18, only to turnaround and buy 20,000 shares around the$12 level. Through repletion of similar procedures, the Smart Money/Composite Man
would accumulate an inventory of stock all
through the base of accumulation.
Then, from December 2013 throughJanuary 2014, we could observe an accumulation gradient of successive rising bottoms in price, which meant that supply waslosing power and demand was gaining

control. At this stage, the attention of
the Composite Man would turn to wrapping up his campaign of accumulation of
CALL stock. He did so by engineering one
final price drop on much lesser volume in
February 2014. That maneuver took thestock price down to $13.50 for a “Last
Point of Support” by the Composite Man.
Supply was exhausted.
What happened next signaled a radical
change in the character of the trading in
CALL stock. The stock was on the cusp ofleaving the accumulation trading range andentering the more upward vertical pricerange or the markup phase. That change
was signaled by the upward break-away
price gap over $14, which was immediately followed by widening price spreadand expanding volume. That price/volume
structure constituted a “sign of strength”
and launching of the markup phase in CALL
stock. Hence, purchases of CALL could
have been made from $14 to $18.
A Wyckoff-oriented trader-technician
would have consulted the point and figure
chart covering the same phase of accumulation. On Figure 2 of CALL the traderanalyst should identify the “Last Point of

Figure 1

IFTAUPDATE 2014 Volume 21 Issue 1

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Education Lounge

CALL—Wyckoff for Smart Money Timing (continued)

Support” at $13.50. Then, by counting theextent of the base on the figure chart, theanalyst would flag upside projections andevaluate the reward-to-risk ratio involved if
he/she were to enter a long-side position in
CALL. In Figure 2, at the $13.50 level, eachbox was valued at $.50, and there were atleast three boxes in each column, giving
a value of $1.50 per column. There were
15 columns on the line that encompassed
the $13.50 level in CALL. Multiplying thevalue of $1.50 per column times 15 columns
rendered a base of accumulation equal
to $22.50. Adding that sum to the low of$11.00 in Figure 2 and to the line marked
by the LPS as $13.50 rendered upside priceprojections for CALL ranging from $33.50
to $36.00.
Purchases could have been anywhere
between $14 and $18. Even if the purchasehad been made at $18, with a protection
stop-loss order entered at $13, the potential reward ($34 less $18 = $16) would haveexceeded the risk ($18 less $13 = $5) by anacceptable 3-1 ratio.
In conclusion, the technical conditions in
CALL made it a good long-side trade according to the principles of the Wyckoff Method.
The reader is advised to monitor the
performance of CALL to ascertain what
actually happens. And, for further details
about the Wyckoff method employed inthis case study, the reader is encouraged

to consult my article “The Wyckoff Matrix:
Coordinating Bar Char ts with Figure
Charts,” IFTA Journal 2013.

Charts: Bar chart courtesy of BigCharts.
com; Point and figure chart courtesy of
StockCharts.com.
Note: Dr. Henry Pruden is the winnerof the 2013 IFTA Lifetime Achievement
Award, which honors the career achievements of a technical analysis practitioner
who has made extraordinary contributions

Figure 2

to the field of technical analysis andexemplifies and promotes the mission of
IFTA through education and research. This
honor is awarded annually to the technician who has demonstrated the highest
standards of personal and professional
conduct and who is held in great regardby his/her peers and the investment community at large.

About the Author
Dr. Hank Pruden is a professor in the
School of Business at Golden Gate

University in San Francisco, where he has
been teaching for 37 years. Dr. Pruden ismore than a theoretician; he has actively
traded his own account for the past 20
years. His personal involvement in themarket ensures that what he teaches
is practical for the trader and NOT just
abstract academic theory. Dr. Pruden
is the executive director of the Instituteof Technical Market Analysis (ITMA). At
Golden Gate University, he developed
the accredited courses in technical market
analysis in 1976. Since then, the curriculum has expanded to include advanced
topics in technical analysis and trading.
In his courses, Dr. Pruden emphasizes
the psychology of trading as well as theuse of technical analysis methods. He has
published extensively in both areas. He
has mentored individual and institutional
traders in the field of technical analysis
for many years. He presently serves on
the board of directors and is past president of the Technical Securities Analysts
Association of San Francisco. Dr. Pruden
was also on the board of directors of theMarket Technicians Association (MTA). He
has served as vice chair, IFTA (International
Federation of Technical Analysts); IFTA
educates and certifies analysts worldwide.
For 11 years, Dr. Pruden was the editorof The Market Technicians Association
Journal, the premier publication of technical analysts. From 1982 to 1993 he wasa member of the board of trustees ofGolden Gate University.

IFTAUPDATE 2014 Volume 21 Issue 1

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Education Lounge

Market Breadth Indicator—
Arms Index
by Alexander Sedlacek, CFTe (VTAD – Munich, Germany)
As technical analysts, we treat two typesof core information. Depending on themonitored timeframe, we analyze theprice (open, high, low, close) and volume
with the help of visual, mathematical, andstatistical methods. In addition, the stock
exchanges supply us with extended information, which provides insight into themarket and its structure (e.g., the number of increasing and falling shares of one
stock index or an entire stock exchange
and how high its volume was; how many
shares developed a 52-week high or low)
These data are processed mathematicallywith the help of market breadth indicatorsin order to obtain information detachedfrom prices.
Richard Arms, well-known for his volumebased indicators, explained the connection between price and volume using theexample of a car and its horsepower. He
stated: “We wouldn’t think of buying a
car without some idea of its power. Why
then would we buy into a stock market
without an indication as to whether it had
the horsepower to make some money.”1 He
introduced the composite market breadth
indicator or Arms Index—also known as

TRIN or Short-Term Trading Index, as it wascalled when it was first covered in a 1967
article in Barron´s. He developed the index
originally to sport intraday changes of thetrend, and for a long time the index wasused only in that context.2 Meanwhile, it isalso used for intermediate and long-term
decisions and applied to other markets toforecast their direction.

The calculation and reasoning
The calculation of the Arms Index is basedon two ratios. The first one considers thenumber of advancing stocks divided by
the number of declining stocks. The second ratio calculates the traded volume ofadvanced shares divided by the volume
of declining stocks. Although the index is
calculated using data from all NYSE stock,it can be refined to include only S&P or
only Dow stocks. 3 The fewer shares areincluded for the calculation, the more one
single share with a high trade volume can
influence the effectiveness and significanceof the Arms Index.
Formula(advances/declines) / (up volume/down volume)
2

1

The ARMS INDEX (TRIN) – Richard W. Arms; p. 1

3

The ARMS INDEX (TRIN) – Richard W. Arms; p. 2
The Technical Analyst June 2008 – The Arms Index

Market Technicians Association’sannual 2014
symposium
April 2 - 3, 2014

Learn more at http://symposium.mta.org

at Convene , 730 Third Ave, New York City

IFTAUPDATE 2014 Volume 21 Issue 1

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Education Lounge

Market Breadth Indicator – Arms Index (continued)

Chart 1A value under 1 is considered bullish andshows that a higher volume of advancing shares has been traded. A value over
1 is bearish and indicates that the volume of the declining shares traded washigher. This means that the index value ismoving opposite to the market, with aninversion possible but not yet established.
Because of the way the index is calculated,the value can theoretically range from 0
to infinite, whereas it usually oscillates
around 1. In the field, the index is used
as a contrary indicator4 in order to identify extreme sell and buy situations in themarket. Accordingly, the right time to buy
is when many others are selling and viceversa. Depending on how the Arms Index
is applied and on the particular market
phase, the extremes vary. Usually, high values are recorded on sharp down days andlow values on strong up days. Considering
all end-of-day data since 2000, 111 days
showed a value over 2.65 and 210 days
showed a value under 0.5. In addition,bullish and bearish divergences from themarket position can be identified; however, timing should not be based on thesefigures only.

The three uses of theArms Index
I. Intraday
The index was originally developed to help
in understanding the intraday gyrations
Technical Analysis of the Financial Markets –John Murphy; p. 444

of the market.5 Before stock exchanges,
the Arms Index was monitored via quotemachines or television. In his book The
Arms Index (TRIN): An Introduction to
the Volume Analysis of Stock and Bond
Markets, Richard Arms introduced amethod rarely used nowadays, but one
that was implemented back then without
the technical tools available today. Everyday, new charts were set up and the values
added. They consisted of the Arms Index(intraday) and the net change of the stock
market to the opening price. The data
points did not correspond to a fixed time
period (e.g., 15 minutes) but were set ina discretionary way based on the market
movements.
Char t 1 on the lef t-hand side shows
the aforementioned method based on
02/11/14 in relation to the S&P 500. Point(A) represents the beginning after thestart of the trading. The S&P was positive and the Arms Index showed a slightbearish divergence with a value of 1.15.
Points (B) and (F) were added at breakouts
of intraday highs. Point (G) represents theend of the day. Analysis confirms an existing uptrend during the day. The chart on
the right-hand side shows the intraday
chart of the S&P 500 with the corresponding breakouts. The ongoing Arms Index
as used today in intraday monitoring isdisplayed at the bottom.

4

5

The Arms Index (TRIN) – Richard W. Arms; p. 11

Datasource: Bloomberg; own diagram

II. Short and medium term
For short-term positions with holding periods of one day up to a few days, the Arms
Index uses end-of-day data. For overbought
situations, (sell) values of under 0.5 to 0.65
are common, while they are usually greaterthan 2 to 2.65 for oversold situations (buy).
They can only be seen as guiding values.
During the final stages of a bear market,
as in 2008/2009, the index can reach evenhigher values, resulting in false signals.

The simple 10-day moving average (MA)shown in Chart 2 (C) is traditionally used,
but shorter, longer, and different kinds ofmoving averages (e.g., exponential moving
averages) are used as well. It is importantto point out that the longer the period of
the moving average, the closer the oversold/overbought level should be toward
the value 1. As an example, these are thereference values according to Richard
Arms:6

Therefore, it is important to be aware of
the current overall market phase. Chart 2
shows the stable upward trend of the S&P
500 (A) since January 2013 in connection
with the Arms Index (B). At an oversold
level of greater than 2.65, four lows wereidentified correctly and at a value greaterthan 2, all six lows were identified correctly.
In terms of time, signals often come one
or two days early.

Overbought (sell)

Oversold (buy)

Short-term MA(4–10 days)

<0.75

>1.25

Medium-term
MA (21 days)

<0.85

>1.10

Long-term MA(55 days)

<0.90

>1.05

6

The Technical Analyst June 2008 – The Arms Index

IFTAUPDATE 2014 Volume 21 Issue 1

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Market Breadth Indicator – Arms Index (continued)

III. Long-termMoving averages are also used for longterm analysis, but with a timeframe of over
40 days. Another possibility is the combination of two different moving averages(e.g., 21-day and 55-day moving average),as shown in Chart 3. The 51-day MA is thebaseline, and the 21-day MA serves as thetrigger line. If the faster moving average
Chart 2is above the slower moving average, theinvestor should be out of the market, or viceversa. This method can also be used as afilter technique to trade short-term setups.

Conclusion
The price indicates what happens in asituation, whereas the volume shows
the strength behind the various market
Chart 3

movements. The Arms Index puts thestrength in relation to increasing or
decreasing shares. Its various applications turn it into a helpful tool for traders
and investors. The Arms Index is a good
indicator; however, the index itself will not
move the market in the direction desired.
It is therefore recommended to use additional methods of technical analysis andto consider the index as a confirmation ofa bullish or bearish market.

References
Internet:
www.dickarmsadvisory.com/
arms-index-overview/stockcharts.com/school/doku.
php?id=chart_school:technical_
indicators:trin
www.technicalanalyst.co.uk/wp-content/
uploads/2014/01/ARMS.pdf
www.hedgetools.co/users_manual/armsindex.pdf
Books:
Arms, Richard W. Jr. The Arms Index (Trin):
An Introduction to the Volume Analysis of
Stock and Bond Markets.
Morris, Gregor y L. Complete Guide
to Market Breadth Indicators: How toAnalyze and Evaluate Market Directionand Strength.

About the Author

Datasource: Bloomberg; own diagram

EDITORIAL FEEDBACK: We always want to know more about
the needs of our readers: what kinds of articles would you liketo see more of ? What do you find useful ? Address your written questions and comments to email address newsletter@ifta.org or to Editor, The International Federation of TechnicalAnalysts Inc., 9707 Key West Avenue, Suite 100, Rockville,
Datasource: Bloomberg; own diagram

Alexander Sedlacek, CFTe, is a professional
technical strategist for a German asset
manager. He is also the regional manager
for the Vereinigung Technischer Analysten
Deutschlands e.V. Munich division.
Maryland 20850 USA. Sorry, we cannot perform research on
individual financial questions not related to this newsletter
and we cannot respond to all mail. Letters or emails containing questions or information that other readers may enjoy orthat relate to our articles or technical analysis topics may be
published in our Letters to IFTA Update column.

IFTAUPDATE 2014 Volume 21 Issue 1

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Board of Directors

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established by the International Federationof Technical Analysts. It is collated by acommittee of IFTA colleagues. The IFTA
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