Trading Quotes from �Way of the Turtle� by Curtis Faith � Part 1

About 25 years ago, trading guru Richard Dennis reportedly said to his long-time friend William Eckhardt, a friend and fellow trader. Dennis believed that successful trading could be taught. This started a bet between them about whether great traders were born or made. To settle this debate, Dennis recruited and trained 21 men and 2 women, and this became a legendary trading experiment.
Dennis trained his Turtles, as he called them, for only two weeks. Then he gave each of them a million dollars of his own money to manage, and turned each one loose on the markets. When his experiment ended five years later, his Turtles reportedly had earned an aggregate profit of $175 million.

Curtis Faith is one of the Turtles. One of his book is Way of the Turtle: The Secret Methods that Turned Ordinary People into Legendary Traders.

Found good trading quotes from this book� with deep meaning.
Here they are:

Human emotion is both the source of opportunity in trading and the greatest challenge.
Master it and you will succeed.
Ignore it at your peril.

Trade with an edge, manage risk, be consistent, and keep it simple.
The entire Turtle training, and indeed the basis of all successful trading, can be summed up in these four core principles.

Good trading is not about being right, it�s about trading right.
If you want to be successful, you need to think of the long run and ignore the outcomes of individual trades.

Trading with an edge is what separates the professionals from amateurs.
Ignore this and you will be eaten by those who don�t.

Edges are found in the places between the battleground between buyers and sellers.
Your task as a trader is to find those places and wait to see who wins and who loses.

Mature understanding of and respect of risk is the hallmark of the best traders.
They know if you don�t keep an eye of risk, it will set its eye on you.

Ruin is the risk you should be concerned with the most.
It can come like a thief in the night and steal everything if you�re not watching carefully.

Continue to Part 2.

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Market Analysis Video: What�s Going to Happen in the S&P 500 Market?

The S&P 500 has made remarkable recovery from the lows that were seen earlier this year.
However, is the recent upward price move going to continue?
There are two major technical indicators that are colliding at a crucial point and time.
The upward moves might potentially come to an end as the market approaches this strategic level.
Unless you�re aware of these indicators, it could be very expensive.

So, watch this video to find the analysis on this market.
I believe you�ll benefit from this interesting video, and also learn something from it.

In addition, if you want to improve your trading knowledge even more, do learn from these 10 Trading Lessons as well. It�s FREE, informative and educational.

Analysis Tool:
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Trailing Stop Limit Order

Trailing Stop Limit Order is similar to Trailing Stop Order, whereby the Trailing Stop Price will be �trailing� below or above the movement of the security�s market price, depending on whether it is on a long or short position, to maintain the set distance, which is either stipulated as an absolute dollar or as a percentage of the market price.

The main difference is that for Trailing Stop Limit Order, when the Stop Price is passed, the order will be converted into a Limit Order, whereas for Trailing Stop Order, it�ll convert into a Market Order.

Hence, for Trailing Stop Limit Order, when the market price hits or passes the Stop Price, the order would convert into a Limit Order to buy / sell the security at the specified Limit Price or better.

As a result, Trailing Stop Limit Order carries a big risk, as the order may never get filled if the market price is worse than the Limit Price. As a result, the position can continue falling with no more protection for the position. This makes Trailing Stop Limit Order a very insecure stop loss method, particularly for the extremely volatile stocks that often experience a gap up or gap down in prices.
Due to this risk, using Trailing Stop Limit Order to protect a position is not advisable.

Depending on the position on the market you have (long or short), there are 2 types of Trailing Stop Limit Order:
a) Sell Trailing Stop Limit Order (Trailing Stop Limit to Sell)
This is the trailing stop order when you have a long position on a security.
In this case, the Trailing Stop Price is placed at a set distance (e.g. Trailing Amount) below current market price of the security.
In addition, the Trailing Limit Price will also need to be specified as a certain distance (e.g. Limit Offset) from the Stop Price, whereby the Limit Price should be at a least the same or lower than the Stop Price.

The Stop Price will then rise as the market price increases (i.e. The Stop Price will be trailing the increasing market price from below: Stop Price = Increasing Market Price � Trailing Amount).
However, the Stop Price will remain the same (will not go lower) when the market price decreases.
Once the market price hits or passes Stop Price, the order would convert into a Limit Order to sell the security at the Limit Price (Limit Price = Stop Price � Limit Offset) or better (i.e. at Limit Price or higher, because for selling, the higher the price, the better).

b) Buy Trailing Stop Limit Order (Trailing Stop Limit to Buy)
This is the trailing stop order when you have a short position on a security.
In this case, the Trailing Stop Price is placed at a set distance (e.g. Trailing Amount) above current market price of the security.
In addition, the Trailing Limit Price will also need to be specified as a certain distance (e.g. Limit Offset) from the Stop Price, whereby the Limit Price should be at a least the same or higher than the Stop Price.

The Stop Price will then move lower as the market price decreases (i.e. The Stop Price will be trailing the decreasing market price from above: Stop Price = Decreasing Market Price + Trailing Amount).
However, the Stop Price will remain the same (will not go higher) when the market price increases.
Once the market price hits or passes Stop Price, the order would convert into a Limit Order to buy the security at the Limit Price (Limit Price = Stop Price + Limit Offset) or better (i.e. at Limit Price or lower, because for buying, the lower the price, the better)

Note:
When placing Trailing Stop Limit Order for an Option, the order will be triggered based on the market price of the option, NOT the market price of the underlying stock. Therefore, the Stop Price should be set based on the option�s price as well.

Therefore, just remember how the price of Call and Put options are related to the underlying stock price:
For a Call option, the option�s price increases when the underlying stock�s price increases, and decreases when the underlying stock�s price decreases (positive relationship).
On the other hand, for a Put option, the option�s price increases when the underlying stock�s price decreases, and decreases as the underlying stock�s price increases (negative relationship).

Example:
Suppose the stock price ABC is on a downtrend. You expect that the stock price ABC will continue to drop further. To take advantage of this opportunity, you short-sell the stock at $20, and place a Buy Trailing Stop Limit order with Trailing Amount = $0.3 and Limit Offset = $0.2.
In this case, the initial Buy Stop Price will be $20.3 and the initial Limit Price is 20.5.
When the stock price falls to $19, the Buy Stop Price will adjust accordingly to $19.3 and Limit Price to $19.5.
If the stock price continues to drop further to $18, the Buy Stop Price will adjust to $18.3 and Limit Price to $18.5.
Suddenly, the stock price stops to drop and begins to increase. In this case, the Buy Stop Price will remain at $18.3. Once the Stop Price of $18.3 is hit, the order will convert into a Limit Order to buy back the stocks at the price $18.5 or lower.
As with the risk of Stop Limit Order, this order may never get filled if the market price is worse than the Limit Price. Hence, the position can continue falling with no more protection for the position.
In this example, suppose the stock price gaps up to $17 and continue to increase, the order will never get filled. This makes Trailing Stop Limit Order a risky method for protecting a position / taking profit, and hence not advisable.

For the list of other types of order, go to: Types of Orders in Trading.

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Market Analysis Video: Where is Nasdaq heading to?

Nasdaq market is showing a negative divergence on the MACD indicator. Is it really a sign that the market may potentially move back downward?
Find out more detailed analysis on the current Nasdaq market in this video.

Learn how to use MACD Divergence to find the clue of a potential market turning, and how to combine the analysis with Fibonacci tool.
Hope you can benefit from this. :)

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TRIPLE TOP PATTERN � Part 2: Important Characteristics

Go back to Part 1: Triple Top Formation.

Important Characteristics of Triple Top Pattern
Existing Trend:
There should be an established existing UPWARD trend prior to the pattern.

Shape of Triple Top Pattern:
1) The Three Peaks:
The peaks / tops should be sharp and distinct / well separated. The price peaks do not have to be exactly the same, but it should appear reasonably equivalent to each other.
If the last top (3rd peak) is lower than the middle top (2nd peak), there is a relatively higher chance of stronger decline. A lower top in the last peak might indicate weaker buying sentiments, as the buyers attempt to reach the previous high or make a new high but fail, suggesting that the buyers might have been drying up & exhausted.

2) The Two Troughs:
The lows of the troughs can appear more rounded.

Duration:
Triple Tops pattern can be considered a long term pattern.
The duration of the formation of the pattern can take several months, normally range from 3 to 6 months, with an average of about 4 months.
Basically, the longer the time duration the pattern takes to develop, the more likely the pattern could work out as a reversal pattern or the stronger the price might move once the breakout occurs.

Breakout:
Even when the price has declined from the 3rd peak, the pattern is not completed yet. The chances that the existing uptrend will continue are still higher than the chances of reversal to take place, as it is normal during an uptrend for the price to test a resistance level a few times, then retreat, and then resume the uptrend again.

Triple Top pattern is only completed and confirmed when the price declines and closes below the lowest lows of the troughs in between the 3 peaks, which serves as the key support level in this pattern. This lowest low is called the �Confirmation Point�.

Remember that we should always assume the existing trend (i.e. in this case is uptrend) is in force unless proven otherwise.
Therefore, it is important to wait for the price to make a decisive breakout by breaking through and closing below the Confirmation Point, accompanied with an increase in volume, in order to avoid jumping the gun and/or prevent deceptive Triple Tops pattern.

In addition, as Triple Tops is forming, the formation may also resemble few other patterns. Before the 3rd peak is formed, the pattern may look like Double Tops (reversal pattern). The three equal highs may also be seen in Rectangle pattern (neutral pattern) or Ascending Triangle pattern (bullish continuation pattern).
Nevertheless, all these patterns have similar principle to follow, which could help differentiate between the above patterns or avoid jumping the gun: Always wait for the decisive breakout to occur before entering into any trade.

Breakout Confirmation:
Sometimes, the price may also make a deceptive/invalid breakout whereby it touches below the Confirmation Point, but then it moves back up again & resumes uptrend.
One possible way to prevent this is by having certain criteria to confirm if the breakout is a valid one.
A minimum penetration criteria for a breakout should be the price closes BELOW the Confirmation Point, not just an intraday penetration.
Some traders may apply certain price criteria (e.g. 3% - 5% break from the Confirmation Point depending on the stock�s volatility) or time criteria (e.g. the breakout is sustained for 3 days) to confirm the validity of the breakout.

Volume:
Volume should be higher during the formation of the 1st peak and then get lighter as the pattern develops the subsequent two peaks, showing an indication that the buying pressures are getting weaker.
The volume may sometimes pick up when the price hits each of the peaks, but overall, volume tends to be diminishing as the pattern is forming.
During & after the breakout of the Confirmation Point, the volume should significantly increase again.
When during the decline from the 3rd peak, the price experiences an accelerated drop, perhaps with a gap down or two, accompanied by an expansion in volume, this might give a good sign, as the price decline tends to drop further, and hence it may provide higher chances that the pattern is a bearish reversal pattern.

Potential Price Target:
1) Compute the height of the pattern: The distance between the highest high of peaks (which serves as the resistance) and the lowest low of the troughs (i.e. the Confirmation Point, which serves as the key support).
2) To compute the potential price target: Subtract the result from the Confirmation Point (i.e. the lowest low of the troughs).

In general, any price target should only be used as a rough guide. To determine the price target, other factors, such as previous support / resistance levels, Fibonacci retracements, or long-term moving averages, should be considered as well.

Return to Breakout Level:
After the breakout occurs, it is common that prices may return to the breakout level for an immediate test of this new resistance level before continuing their moves in the direction of the breakout. (Remember that the support now has become a new resistance level).
This could actually offer an opportunity to participate in the breakout with a better reward to risk ratio.

To find out more about other Chart Patterns, please refer to:
Learning Charts Patterns

Analysis Tool:
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TRIPLE TOP PATTERN � Part 1: Formation

Triple Top Pattern is a bearish reversal pattern that normally forms after an extended uptrend, which marks a shift in trend from bullish to bearish.

The Formation of Triple Top Pattern



Triple Top Pattern contains three consecutive, distinct & sharp peaks / tops at about the same price level, with moderate troughs in between the peaks, followed by a breakout through a support.
This pattern forms when the price is in an existing uptrend. It occurs when the price increases to a resistance level (forming the 1st peak), then decline (forming the 1st trough), and then return to the resistance level (forming the 2nd peak), then decline again (forming the 2nd trough), and then return to the resistance level again (forming the 3rd peak), before subsequently decline further.

Although the price peaks do not necessarily need to be exactly the same, but it should appear near the same price level.

The pattern is completed and confirmed when the price declines and closes below the lowest low of the two troughs, which serves as the key support level in this pattern. This lowest point is called the �Confirmation Point�.

This pattern occurs because the buyers attempt to push the price higher, but are not able to do so as they are facing resistance, which prevents the continuation of the uptrend. After three failed attempts, the buyers in the market exhausted and gave up, and the sellers begin to be more aggressive to take control of the market and drive the price lower, sending it down into a new downtrend.

To be continued to Part 2: Important Characteristics of Triple Top pattern.

To find out more about other Chart Patterns, please refer to:
Learning Charts Patterns

Analysis Tool:
Get Free Trend Analysis for your favorite symbols

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