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Pristine.com Presents
Trading The Pristine Method Part I The Refresher Course With Oliver L. Velez
Co-founder of Pristine.com, and co-Author of the best selling book, Tools and Tactics for the Master Day Trader Copyright 2003, Pristine Capital Holdings, Inc.
Disclaimer It should not be assumed that the methods, techniques, or indicators presented in this book will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples in this book are for educational purposes only. This is not a solicitation of any order to buy or sell. “HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES IN THIS BOOK HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS WE STATE MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.” The authors and publisher assume no responsibilities for actions taken by readers. The authors and publisher are not providing investment advice. The authors and publisher do not make any claims, promises, or guarantees that any suggestions, systems, trading strategies, or information will result in a profit, loss, or any other desired result. All readers and seminar attendees assume all risk, including but not limited to the risk of trading losses. Active Trading can result in large losses and may not be an activity suitable for everyone. Copyright © 1994-2002 by Pristine Capital Holdings, Inc. All rights reserved. Printed in the United States of America. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without prior written permission of the publisher.
Table of Contents
Introduction Trading w/ the 20MA Trading the 4 Different Stages Pristine Trendline Techniques
Pristine Method Trading the PBS & PSS Trading the CBS & CSS Trading the PBZ & PSZ Trading the PBO& PBD
The Exams Pristine Quizzes Pristine Trading Exercises Pristine Trading Exams
Pristine ESP Product Review Pristine ESP: The Climactics MasterTrader Pro Pristine ESP & MT Combined
Introduction
Trading With The Trend & The Mighty 20 MA
The Pristine Railroad Tracks 1) 2) 3) 4)
Up Trend Formula Rising 20ma (r20ma) + Rising 40ma (r40ma) + r20ma > r40ma + Relatively even space in between Nice space
Nearly all dips should rebound sharply
r20ma r40ma
Find and circle 7 Pristine Buy Set-ups (PBS)
Chart Courtesy of Mastertrader.com
The Pristine Railroad Tracks 1) 2) 3) 4)
Up Trend Formula Rising 20ma (r20ma) + Rising 40ma (r40ma) + r20ma > r40ma + Relatively even space in between
Nearly all dips should rebound sharply
r20ma r40ma
Circles show 7 Pristine Buy Set-ups (PBS)
Chart Courtesy of Mastertrader.com
Playing the Uptrend Marking up charts in this fashion builds trading skills Far move from 20ma and trains the eye to find Sell opportunity. Do it often! -COG w/ TT far from 20ma Sell
Breakout Buy RLs
PBS
Breakout Buy
PBS
r20ma
r40ma
RLs
Note the rising lows (RLs) before the breakouts Note the railroad like moving averages
Chart Courtesy of Mastertrader.com
The Macro Swing Trade
PSS in the PSZ Breakdown The Macro Swing Trader rides the trade as long as the stock stays below the d40ma. The Macro Swing Trader would consider covering if: 1) The MAs began to narrow; 2) A Climactic Buy Set-up (CBS) formed
Chart Courtesy of Mastertrader.com
d20ma d40ma
Trading with the 20ma There are Core Trade & Swing Trade opportunities in Nortel (NT) d40ma Narrowing moving averages indicate a near end to stage 4
The Pristine Trained Trader (PTT) trades in the same direction of the 20MA 92% of the time.
Chart Courtesy of Mastertrader.com
d20ma
Trading with the 20ma There are Core Trade & Swing Trade opportunities in Teradyne (TER) d40ma d20ma
The Pristine Trained Trader (PTT) trades in the same direction of the 20MA 92% of the time.
The trader considers covering some here
Chart Courtesy of Mastertrader.com
Trading with the 20ma PTT shorts rallies with the d20MA
Note the nice spaces between the moving averages. They move like railroad tracks on the way up and down.
r20ma r40ma r20ma r40ma
PTT buys dips in the same direction of the r20MA = Pristine Trading Opportunities
Chart Courtesy of Mastertrader.com
Foundation
The Four Different Stages Of The Stock Cycle
Three Major Stages (2-3-4) Stage 3
Stage 2 PBS
Breakdown
Pristine Bear Mortgage Play
Stage 4 PBS
Chart Courtesy of Mastertrader.com
The Moving Average Story Stage 3
Narrow MAs
Stage 4
Stage 2
Breakdown
20ma
40ma
Note how the moving averages can reveal what stage a stock is in. In stage 2 we have the upward railroad track MAs. In stage 3, we have narrow to flat and wavy MAs. In stage 4 the MAs convert to a downward railroad track pattern. = Pristine Trade Opportunities
Chart Courtesy of Mastertrader.com
Three Major Stages (2-3-4) Stage 3
MAs Cross & Flatten
Breakdown
Stage 2 d20ma d40ma
Did the moving averages warn of a possible Stage 4?
Chart Courtesy of Mastertrader.com
Stage 4
All 4 Major Stages (1-2-3-4) Stage 3
Flat & Wavy MAs
Stage 2 r20ma
Stage 1
r40ma
Stage 4
What are the moving averages saying right now?
Chart Courtesy of Mastertrader.com
Three Major Stages (2-3-4) R&F
Stage 3 R&F = Retest & Failure
Stage 2
Whippy MAs
r20ma r40ma = Pristine Trading Opportunities
Chart Courtesy of Mastertrader.com
Stage 4
Three Major Stages (2-3-4) R&F
Stage 3
MAs say sell rallies & B/Ds MAs say buy dips & B/Os Stage 2
MAs say use support & resistance techniques
PBS
PBZ
PSS B/D
Stage 4
Note how the moving averages dictate how to trade
Chart Courtesy of Mastertrader.com
Three Major Stages (2-3-4) Peek-a-boo Breakout
Stage 3
Stage 2
Breakdown Pristine Tip: 70% of all breakouts fail, resulting in many “peek-a-boo” attempts. When bullish bar breakouts fail to follow through on the very next bar, a major reversal is usually at hand.
Chart Courtesy of Mastertrader.com
PSS
Stage 4 50% CBS
The Three Stages (2-3-4) Stage 3
Peek-a-boo New High Wavy MAs
Breakdown
Stage 2
r20ma r40ma
Stage 4
Note how the moving averages tell the story of the stages
Chart Courtesy of Mastertrader.com
Three Major Stages (2-3-4) Stage 3
Stage 4
Stage 2
Wavy MAs
20ma 40ma
Note how the MAs reveal how to trade the stock = Pristine Trading Opportunities
Chart Courtesy of Mastertrader.com
Ending Stage 4 Stage 3
Flat & Wavy MAs
Breakout
Breakdown
Stage 2 PSS Stage 4 Pristine Tip: The CBS usually ends (finalizes) Stage 4 CBS
Chart Courtesy of Mastertrader.com
The Completed Cycle Stage 3 = Pristine Trading Opportunities
d20ma r40ma
Stage 2 r20ma
Stage 1
r40ma
Stage 4
Major Area of Support Volume Ignites Move
Volume Ends Move
Chart Courtesy of Mastertrader.com
Three Major Stages (4-1-2)
What are the Moving Averages telling us?
Stage 4
Stage 2
Stage 1
Flat and Narrow MAs
Chart Courtesy of Mastertrader.com
Trend Line Technique
The Pristine Trend Line Technique
Uptrend Line Break (UTB) Stage 3 2 Best Short Opp.
Transitional Phase ‘B’
R&F
Stage 2 1 Point 1
Buy, but don’t look for a New High
Point 2
Chart Courtesy of Mastertrader.com
Breakdown
Up Trend Line Break (UTB) Stage 3
Transitional Phase ‘B’
2
Best Short Opp. R&F
3
Stage 2 Buy, but don’t look for a New High
1
Point 1 Point 2
Breakdown Stage 4
Chart Courtesy of Mastertrader.com
Pristine Pop Quiz
1) 2) 3) 4) 5)
Instructions & Questions Draw a Down Trendline Number the Trendline events Which Transitional Phase? What is the next likely move? Where could the move go?
Chart Courtesy of Mastertrader.com
Pristine Pop Quiz Point 2
1) 2) 3) 4) 5)
Instructions & Questions Draw a Down Trendline Number the Trendline events Which Transitional Phase? What is the next likely move? Where could the move go? 3? Point 2 1
Transitional Phase D 2
Chart Courtesy of Mastertrader.com
Trading The PBS & PSS
Trading The Pristine Buy & Sell Set-ups
60-minute Chart of ROK CSS
Trading Tip: The Pristine Trained Trader (PTT) uses the 60-minute chart to find Swing, Guerilla & some Day trading opportunities.
PBS
Circles = Pristine Trading Opportunities r20ma
PBO
r40ma -Trap
Chart Courtesy of Mastertrader.com
30-Min Pristine Buy Set-up (PBS) Pristine Buy Set-up on a 30-min chart Note: The best intra-day PBS’s occur when the 20ma is above the 200ma r20ma
200ma
Chart Courtesy of Mastertrader.com
15-minute Chart of GSF Trading Tip: The Pristine Trained Trader (PTT) uses the 15-minute chart to find ‘day trading’ opportunities.
CSS
Circles = Pristine Trading Opportunities PBS
200ma PBS PBS @ MPS
Chart Courtesy of Mastertrader.com
r20ma
5-minute Chart of RCL Trading Tip: The Pristine Trained Trader (PTT) uses the 5-minute chart to find ‘micro trading’ opportunities. Circle = Pristine Trading Opportunity r20ma Plays
r20ma 200ma
Chart Courtesy of Mastertrader.com
2-minute Chart of COST
PSS
Trading Tip: The Pristine Trained Trader (PTT) uses the 2-minute chart to find d20ma ‘scalp trading’ opportunities. PSS PSS
Circles = Pristine Trading Opportunities
PBS
Chart Courtesy of Mastertrader.com
PBS
15-min Pristine Buy Set-up (PBS) Pristine Buy Set-up on a 15-min chart Note: The best intra-day PBS’s occur when the r20ma is above the 200ma Stage 2
r20ma
Stage 4 200ma
Stage 1
Chart Courtesy of Mastertrader.com
Anticipating w/ the Bearish COG
d40ma d20ma
Bear COG 1) 2) 3) 4)
3 or more green bars plus A relatively solid red bar that closes near the low at A declining 20ma equals Anticipation Short Play * Reverse this technique for the Anticipatory Long
Chart Courtesy of Mastertrader.com
The Power of the 200ma Using the PBS with MAs & Major Support
r20ma
r200ma
Chart Courtesy of Mastertrader.com
The Complete Pristine Buy Method Pristine Buy Criteria 1) 2) 3) 4) 5) 6)
Stock in Uptrend Rising 20ma Rising 40ma Rising 20ma < 40ma OBV rising (not shown) ADX above 25 (not shown)
Pristine Buy Set-up 7) PBS’s (4) 8) CCI(5) Signals
Follow Action Steps: 9) Enter; 10) Stop; 11) Target; 12) Manage
Chart Courtesy of Mastertrader.com
The Complete Pristine Sell Method d20ma
Pristine Sell Criteria 1) 2) 3) 4) 5) 6)
Stock in Downtrend Declining 20ma Declining 40ma Declining 20ma < 40ma OBV declining (not shown) ADX above 25 (not shown)
d40ma
Pristine Sell Set-up 7) PSS w/ -COG 8) CCI(5) Signal
Follow Action Steps: 9) Enter; 10) Stop; 11) Target; 12) Manage
Chart Courtesy of Mastertrader.com
Trading Against the 20ma
The Pristine Climactic Buy & Sell Set-ups
Trading Against the 20 MA 5+ Red Bars
Climactic Buy Set-up (CBS) 1) 5 or more Red Bars (or lower highs) 2) Far from 20 MA (8% or more) 3) Bottoming Tail (BT), NRB, and/or +COG 4) Pick-up in Volume Volume
Chart Courtesy of Mastertrader.com
BT
The Climactic Buy Set-up & the PSS d40ma d20ma
PSS Note: The CBS will often deliver a playable PSS a week or so later. Therefore, CBS’s represent dual profit making opportunities. But don’t expect a new low on the decline! The same applies in reverse.
5 Red
CBS
Chart Courtesy of Mastertrader.com
Climactic Buy Set-up (CBS)
It should always be noted that the CBS will lead to sell opportunity as well; however, the subsequent PSS must be played based on the 40/60 Rule. The same applies in reverse. Tip: The decline after a CBS will often be a shallow one.
PSS
5 Red Bars
Big Volume
50% CBS
Chart Courtesy of Mastertrader.com
Climactic Buy Set-up (CBS) PSS
r20ma
5+ Red Bars
r40ma
CBS
Chart Courtesy of Mastertrader.com
Marking it Up Major Resistance
PSS/R&F Failed PSS
Major Support PBS
CBS w/ Darling Doji Climactic Volume
Chart Courtesy of Mastertrader.com
Wide Range Bars (WRB) Wide Range Bar (WRB)
The WRB (the widest bar of the base) dictates the next direction. Another WRB that originates not far from the d20ma indicates more downside is on the way. WRBs far away from d20ma indicates move is near complete.
Chart Courtesy of Mastertrader.com
PSS w/ Doji In the PSZ
The PBZ & PSZ
Trading The Pristine Buy & Sell Zones
The Pristine Buy Zone The zone between the rising 20ma & 40ma acts as a very powerful area of support.
r20ma r40ma
Chart Courtesy of Mastertrader.com
Pristine Sell Set-up in PSZ d40ma
After a CBS, KSE has formed a: 1) PSS (Pristine sell set-up); 2) with a –COG (bearish COG); 3) And a TT (topping tail) 4) In the PSZ (Pristine Sell Zone) 5) After a 40/60 (% retracement) 6) At the EOM (end of the month)
d20ma
See circle for all 6 items
Chart Courtesy of Mastertrader.com
CBS
The Pristine Buy/Sell Zones 1: Which of the two trades could have been anticipated? Buy or Sell? PSS in the PSZ
2: Can you find other signals? 3: Point out the first warning of an up trend change.
PBS in the PSZ
Area of Macro Support
Chart Courtesy of Mastertrader.com
The Pristine Buy/Sell Zones R&F 1: The PBS can be anticipated due to the +COG closing near the high.
1st Warning of a Trend Change
PSS in the PSZ
2: Circles show other Pristine signals. 3: R&F is the 1st sign of a trend change.
PBS in the PSZ
Area of Macro Support
Chart Courtesy of Mastertrader.com
Pristine Sell Set-up in the PSZ Stage 3
Stage 2
20ma 40ma
Stage 4
PFGC forms a: PSS; with a -COG; and a deadly Doji; in the PSZ; after a 40/60%; on the 1st pullback of a breakdown. See Circle for items listed above
Chart Courtesy of Mastertrader.com
Trading Breakouts
The Pristine Breakout Method
1-2-3 Breakout Pattern
1) 2) 3)
3 Parts of the Breakout Buy aggressively if you find it Look for the PBS and Buy Buy only if not extended
1
Chart Courtesy of Mastertrader.com
3
2
The Pristine Breakout Notice the Pristine Trained Trader (PTT) does not wait for volume. The PTT helps to create the volume. Volume will usually lift the committed PTT on breakouts. Pristine Breakout Stop Volume comes after the PTT buys
Chart Courtesy of Mastertrader.com
The Breakout Play In Stage 2 the Pristine Trained Trader (PTT) buys: 1) Dips and 2) Breakouts Buy Breakout Pause Stop
Stage 1
Buy Breakout Stop
Big Volume Chart Courtesy of Mastertrader.com
Pristine Breakout Buy Tip: A strong breakout, accompanied by big volume, typically leads to multiple buy opportunities
B/O PBS
Breakout Buy
r20ma r40ma
Stop Big Volume
Chart Courtesy of Mastertrader.com
The Pause That Refreshes Note the narrow nature of the base Note the drop off in volume PBS
Why is the PBS considered high risk? Answer: Because its too far from the 20ma
Breakout Buy
Stop
Drop in Volume
Chart Courtesy of Mastertrader.com
The ‘Pause’ That Refreshes At or near the point of contact with the r20ma, CBE breaks out and explodes to the upside.
Buy
d20ma d40ma
Drop off in Volume
Chart Courtesy of Mastertrader.com
The “Pause” That Refreshes AAsideways sideways“pause” “pause”into intoan an r20ma r20mawill willtend tendto toproduce produceaa very Breakout verypowerful powerfulbreakout breakout
Breakout
r20ma
200ma
Volume drop off
Chart Courtesy of Mastertrader.com
Volume drop off
The Pristine Breakout Play Note the narrow base accompanied by rising lows and narrowing moving averages. Breakout r20ma r40ma
Chart Courtesy of Mastertrader.com
Pristine Combos Trend is down Stop
Pristine Tip The PTT will usually play a PBD from a narrow base very aggressively.
PSS w/ TT at mPR
PBD 50% Ant. CBS
Chart Courtesy of Mastertrader.com
Transitional Phase ‘A’ What’s next for IBM? Up move or Down move? Answer: The next move should be up
3 1
Chart Courtesy of Mastertrader.com
2
Trading Tests
Pristine Trading Exams
Identifying ‘Clean’ Pristine Trades Identify the three cleanest trading opportunities 1)_____________ 2) _____________ 3) _____________
Chart Courtesy of Mastertrader.com
Identifying ‘Clean’ Pristine Trades 3
Identify the three cleanest trading opportunities 1) Pristine Breakout 2) Pristine Buy Set-up (PBS) 3) Climactic Sell Set-up (CSS) 2 1
Chart Courtesy of Mastertrader.com
Find The Clean Trading Opportunities
1) Circle each clean trading opportunity 2) Name each clan trading opportunity
Chart Courtesy of Mastertrader.com
Find The Clean Trading Opportunities 1 Be cautious of PBSs after CSS
Breakdown that is not as clean 2
3
4 5 7
1) CSS; 2) PSS; 3) PBD; 4) PSS; 5) PSS; 6) CBS; 7) PSS
6
Chart Courtesy of Mastertrader.com
Finding The 4 Best Pristine Plays Find the 4 best Pristine Trades 1) Circle the trades 2) Name the trades 3) Choose your favorite
Chart Courtesy of Mastertrader.com
Finding The 4 Best Pristine Plays CSS 2
4
PBS
3
1
1) PBS; 2) PBO; 3) PBS; 4) PBS My Favorite is 4: PBS w/ a doji at mPS, off the r20ma
Chart Courtesy of Mastertrader.com
Pristine Trading Test Find and Name the Following: 1) Nine Possible Plays 2) The best Breakout Play 3) The best two PBSs 4) The best short set-up
Can you find a 1-2-3 Breakout Pattern?
Chart Courtesy of Mastertrader.com
Pristine Trading Test Best Short 9
7
1) PBO; 2) PBO; 3) PBS; 4) PBS; 5) CSS; 6) PBS; 7) CSS; 8) PBS; 9) PSS Best Breakout Play: 1, due to the tight and narrow base. Best two PBSs: 6 and 8 due to the prior peaks being new monthly highs Best Short Set-up: 9 due it also being an R&F (Retest and Failure). 1-2-3 Breakout Play: The red numbers 1, 2 and 3 5
3
8
1 2
2 6 3
Best B/O Play
4
1
Chart Courtesy of Mastertrader.com
2 Best PBSs
Pristine Trading Test
1) 2) 3)
Instructions Circle and name the last 2 Guerrilla trades in this chart Which Pristine Entry Method you use for trade 2 Point out the area you look to exit each trade
Chart Courtesy of Mastertrader.com
Pristine Trading Test
2 Bear 20/20
Guerrilla Trade 1: Gap n’ Snap Play Guerrilla Trade 2: Bear 20/20 Play Entry Method for Guerrilla Trade 2: 30-minute Sell Rule Exit for Guerrilla Trade 1: In the area of the 20ma Exit for Guerrilla Trade 2: In the 40/60 Retracement Area
Exit
Exit
Gap n’ Snap 1
Chart Courtesy of Mastertrader.com
Pristine Trading Test
1) 2) 3)
Instructions & Questions How many Buy Opportunities? Circle and name them Find the failed Pristine Sell Set-up
Chart Courtesy of Mastertrader.com
Pristine Trading Test Failed PSS
3
PBS 2 CBS 1
Chart Courtesy of Mastertrader.com
PBS
Pristine Trading Test
d20ma d40ma
Questions 1)1) Find Findthe the33best besttrading tradingsignals signals 2)2) Which Whichtrade tradecan canbe beanticipated? anticipated? 3)3) Why Whycan canititbe beanticipated? anticipated?
Chart Courtesy of Mastertrader.com
Pristine Trading Test
d20ma d40ma
2 PSS
Answers 1: CBS; PSS; PBS 2: Trade 2 (CBS) can be anticipated 3: The CBS’s +COG closed near the high 1 CBS Big Volume
Chart Courtesy of Mastertrader.com
3 PBS
Pristine Trading Test 1) 2) 3) 4)
Instructions & Questions How many Pristine (long) trades can you find? Name the trade types Which trades can be anticipated? Find 4 high risk short points
Chart Courtesy of Mastertrader.com
Pristine Trading Test 4
Answers 1: Four Long Trades 2: 1-CBS; 2-PBS; 3-PBS; 4-PBS 3: Anticipate trade 4, the PBS 4: Red circles and numbers
3
2 1
4 3
2 1
Chart Courtesy of Mastertrader.com
Mark This Chart Up
Chart Courtesy of Mastertrader.com
Mark This Chart Up Rounded top V Top
3
PBO off r20ma
A 2 1
PBS off 20ma
r20ma r40ma PBS at MPS
Chart Courtesy of Mastertrader.com
A = Skeptical PBS
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Pristine Product Review
Pristine ESP v1.2
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Chart Courtesy of Mastertrader.com
Alerts
The Power of Pristine ESP
Merlin: The Pristine Trained Wizard
Intra-day Climactic Scans
Example of how to use ESP to find my favorite Intra-day trading pattern: the CBS and the CSS.
Mastertrader.com
Pristine ESP & Mastertrader Pro 110 Pristine ESP Trading Alerts, in real-time
Voice driven trading education via Pristine ESP Dynamic Level II Screen with colored trade buttons
Comprehensive Level 1 Data
Real-time Charts w/ Analytics
Real-time Ticker
Real-time News/ Real-time Account Information
200 Pristine ESP Scans on over 9,000 securities Real-time Market Minders
The Perfect Trading Combo Platform Courtesy of Mastertrader.com
Execution module with 6 direct-access routes
