02. the foundation

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Introduction, to the Foundation, of the PristineMethod of TradlnqIn this section, we wil l ' reveal two of Pristine's Master Trader Keys tounderstanding how all markets work. The following two concepts form thecornerstone ofever_vone of our sound trading techniques and tactics. Aftergaining a clear understanding of these two building blocks, the Pristine TrainedTrader (PTT) should never again find himself confused and not knowing what todo. ln fact, once these two powerful but simple concepts are understood andmastered, the PTT should rarely find himself on the wrong side of the market.And, justin case you don't know, over 65% of all trading losses can beattributed to being on the wrong side of themarket. Let's begin!

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In Stage 2, the Pristine TrainedTrader (PTT) focuses on buying92% of the time.In Stage 4, the Pristine TrainedTrader (PTT) focuses onselling/shorting 92% of the time.

~ In Stages 1 & 3, the PristineTrained Trader (PTT) can focuson both, buying and shorting.,_ Stage 1 back to Stage 1 canspan over decades (macro), orover minutes (micro), dependingon the time frame.Q This Cycle/Unit is made up ofonly three (3) primary trends.

Stage 3Uncertainty Sen

Stage 2Greed Stage 4Fear

Buy Stage 1AmbivalenceStage 1Ambivalence

OSuy Area o Sell Area42


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CorrectSell Area

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CorrectBu y Area

Traders who win consistently - no matterwhat time frame - have simply learned toplay the cycle/unit in this manner: They

buy somewhere duriing the start of Stag,e 2,and sell somewhere before Sta'ge 4 begins.

FaultyBuy Area

FaultySell Area

Traders who lose are unconsciouslyplaying the stock cycle in this faultymanner: Thev buy so:mewhere afterStage 2 is proven to an ,and they sellafter it is obviious they were wrong,.


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Stage 1 "'-AmbivalenceStage 3 = Indecision/ConfusionI I

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MDnthly 1998 1999Pristine Not'e: Stage Is will tend to benarrow and tight, while macro Stage 3swill often be wide and whippy.

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I v 1onth Iy ( F U q h t)1997 1 9~3E l 1999 2000! !Stage 3, ,

2001 2002 2003I I I : I 2 TTs produced a 95% decline I 140ristine Note: At times,Stage 3s will be sharp andabrupt. These tops oftenresult in very severecollapses.

1201 TT produced _ _ _ _ _ J _ _ . .a 5 5 % decline Wilde 'Bars 1 C lOStage 1=AmbivalenceStage 3 = Indecision

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tv10nthly (Rjght) 1997 1998Pristine Note: At times, Stage 3swill be sharp and abrupt. These topsoften result in very severe collapses.

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Monthly (R.iqht)1 997 1~ 398Pristine Note: At times, Stage3s will be sharp and abrupt.These tops often result in verysevere collapses.Stage 1- AmbivalenceStage 3 = Indecision/Confusion

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Stage 2Buy Breakout

Note the wide distancefrom the 201na at thestart of stages 1 and 3,

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~ There is only one cycle in existence. Stocks and/or the market can do nothingelse but repeat this cycle over and over. No other movement is possible.This is the master key to predicting future stock movements. Remember it!~. This cycle lismade up of four (4) distinct stages, which in turn are driven byfour (4) distinct emotions or psychological states. The 4 stages must, and

alwa_vsdo, occur in the same sequence. This is also an important key toprice prediction based on the laws of probability and psychology.~ Stage 1, the bottoming period, is driven by Ambivalence. This is the stageduring which traders are indifferent and largely uninterested in participating.The interest level is low because of the prolonged poor market condition of thepreceding Stage 4.~ Stage 2, the bullish period, is driven by Greed. This is the stage during whichtraders will make the most money. The mindset that dominates Stage 2 is onethat wants to be in the game, at any cost.which is why the 'Greater Fool'Theory rules. Most participants will make mone~yduring Stage 2, except

those who come in too late and/or those who sta_vtoo long.51


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~. Stage 3, the topping period, is driven by Uncertainty. During this stage, bullishsentiment begins to change,. as a growing number of pla_versbegin to doubtthe stock's (market's_)abilit_vto continue its upward momentum ..Q Stage, 4, the bearish period, is driven entirely by Fear., which typically escalatesor crescendos into a climax near the bottom, Most traders will lose money duringthis stage. Those who have held on too lonq begin to exit in an attempt to keep

some of their qains. Those who have entered late typically exit late: but Hikeaherd, they tend to exit all at once, which in turn creates the climactic part of thedecline, Once the' last batch of traders exits, the worst is over. Moredownslde may still occur, but tihe negative momentumwill have subsided afterthe climax.~ Important: There is only one way to lose. If a trader thoroughly understands theonly error that leads to losing, he will be more prone to avoid it.~Pr'istilne ESpTM T:radingl Tiip: To find Stage 2 and Stage 4 Trends, the PTT willregularly run Monthly, Weekly and Daily Up Trend and Down Trend Scans.These scans can be found in the l.onq-terrn, Core and Swing: Trading Moduiles ofPristine ESPTM.

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Q A stock, or any market, can only be in one of the 4 stages at any given time.Note: A stock can, however, be in ditierent stages in different times frames.~ ldentityinq which stage a stock is in is vital to successful tradinq, : I t helps toreduce losinq trades, and adds a quality to one's decision making that isunrivaled ..Note: Pristine Trained Traders (PITs) neverpiece trades without first

knowing in which stage those trades are being done.~ The PTTwill1 make most of his big profits durinq Stage 2 and Staqe 4. Note:

Core Trading and Pristine Pyramiding are' styles that work best in Stages 2 and 4.t. J Keep in mind that each stage calls for a specific trading strategy.

Note': The' PTT has Stage 1 tools, Stage 2 tools, Stage 8 tools and Stage 4 tools.

~ All a trader needs to do is learn how to handle himself in each of the 4 stages.Note': The' PIT who knows how to handle' himself in all 4 stages has about 85% of themarket's activity covered.

~ The PTT trades with the flow of each stage 92% of the time. Note: Using theappropriate trading tools and tactics, the PTT only qoes against the flow of each stageroughly 8% of the ' time.

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~ The 4 stages are divided by or linked by 4 Transitional Phases. Note: Theserepresents the links that tie the 4 stages together into a cohesive who/e.

~ The 4 Transitional phases tend to be the most difficult periods or area of thecycle to trade. Note: They tend to be wild, whippy, choppy and very volatile, almostas if they were designed to defy even the talents of those who have mastered the 4dominate stages.

~ The highest degree of market mastery will be obtained when the traderlearnshow to handle the transitional phases (a, b, c & d), as well as the 4dominate stages. Note: This should be the goal of every would be Pristine TrainedTrader (PIT).~ The entire 4-stage cycle is made up of 3 primary trends. Note: This leads us tothe second 'Mester Key' to Trading Success.

Note: We cover the Four Transitional Phases in much greater detail later in the course.54


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I'II

Master Trader Kev #2

There are only three things a stock can do:go up,

go down, orgo sideways.

Note: In reality, there are only two trends. What we refer to as the Sideways Trend isnothing more than a temporary pause or pit stop between the two most dominant

trends, the UpTrend and Down Trend.55


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UpTrend I Down Trend IS'deways TrendDefined by 1) higher highs, 2) higher lows, 3) a rising 20-periodmoving average (r20ma), 4) a rising 40-period moving average(r40ma) and 5 1 a relatively even space in between the two rMAs.

The UpTrend is also known as Stage 2.

Trading Tip: Once the above Pristine UpTrend criteria are met, the PTT's sole ' P B sobjective is to buy every single d1'p/pul1b8ekand breakout in the Stage 2 UpTrend. Notone should ever escape the PTT.o= Pristine Buy Opportunity

Pristine ESpTMTrading_Tip: Use Monthly, Weekly andDaily Up Trend Scans to find stocks in powerful Stage 2s. 56


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Daily (R.ight)

Note the smooth nature of the r20ma and the r40maAll, pullbacks are buyable

Pristine12 Uptrend CrUeria11 1) Higher Highs(A - E)10 2) Hi'gher Lows

(1 - 5)9

3) Rising 20man r20ma7 4) Rising 40mar40ma

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5) Even spacebetween the20ma & 40maRailiroad Tracks

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ALL PULLBACKSARE BUYABLE!!

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Daily (Right)

Note the smooth nature of the r20ma and the r40maAU pullbacks are buyable

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r40ma5) Even spacebetween the20ma & 40maRail road Tracks

ALL PULLBACKSA R E B UY A BL E!!


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Jul

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Pristine Uptrend Criteria1. Higher Highs (a -d)2. Higher Lows (1 - 3)3. Rising 20ma (r2Dma)4..Risi.ng 40ma (r4Dma)5. Even space in betweenAll Pullbacks are BuyableBreakouts are also Buyable

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Daily (R.ight)d

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. .~. /~AU Pullbacks are Buyable I , t l ' . f f 1 , / - - - - - , 3 .>Breakouts are also Buyable ~+~ . . T . ~ .'~m'P~~-/ _~'>/-/ .I I I . . . ~ ~ _ - - - - - - - - r20mao - : 2 .I + ~ / / .?/-~-/~ -.'. lO~ ~ /_----~-------~-- r40maF = = > ~ . _ _ _ _ _ , . . . . c : : : ; - : : : - - - - -~ --_:::::._:::S:=l~~~,..-t-"I'--'//

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Pristine UpTrend Crlterla1..Higlher Highs (a -cJ)2. Higlher Lows (1- 5 )3. Rising 20ma (r2Dma)4. Rising 40ma (r40ma)5. Even space in between a

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Daily' (Plight)

Pristine Up Trend Criteria1. Higher Highs (a - d)2. Higher Lows (1 - 5)3. r20ma4. r40ma5. Even Space in betweenAll /Jips & Breakouts can be bought

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Pristine.Up Trend Crite'ria1) Higher Highs (A- D)2) Higher Lows (1 -4)3) Rising 20ma (r20ma)4) Rising 40ma (r40ma)5) Even Space Between

All Pullbacks Are Buyable

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Up Trend IDown rend I Sideways TrendDefined by 1) lower highs, 2) lower lows, 3)a declining 20-periodmoving average (d20ma), 4) a declining 40-period moving average(d40ma) and 5) a relatively even space in between the two dMAs.

The Down Trend is also known as Stage 4.Trading Tip: Once the Pristine Down Trendcriteria are met, the PTT's sole objective isto sell/short every single rally andbreakdown in the Stage 4 Down Trend. Notone should ever escape the PTT.

Pristine_ESPTM Trading Tip: Use Monthly, Weekly andDaily Down Trend Scans to find stocks in powerful Stage

o=Pristine Sell Opportunity63


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Up Trend IDown Trend ISideways TrendDefined by a series of "relativel_v" equal highs and lows.

The Sideways Trend is also known as Stage 1 & Stage 3.Trading Tip: The PTTs objective is tobuy the dips and sell/short the rallies ina Sideways Trend.0=Pristine Buy Opportunityo= Pristine Sell Opportunity

Note: In a Stage 1, the PTT is more prone to buy the dips than sell the rallies.In a Stage 3, the PTT is more prone to sell the rallies than buy the dips. Why?


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- Daily (Right)A Sideways Trend is defined by a series of; ~ : : : V : : ~ : : ~ ~ : : a : :: : : / : : : : : : : I : : l r : : : : S t a g e 2 h J $ ~ ~o u t o r b r e a k s d o w n . I n t h i s c a s e , a b r e a k o u t i s ~k!Dwhat material_iZ_d, resul'ting in a move to_a _ _ _ I~Stage 2 Up Trend. \ltV

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Daily (Rbjht) Stage 3

Equall Higlhs-----.-t-------------:t:-----n-----------;---------t~ , l , t h ~ 6 h ' + I n , n i jt t t~m ~ ' ~ , " j * , 1 , ~ I I t ~ !@ ~Equal LOws-------I1~---+Y__+-------lf----------fJI,4--l-=~~----i

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A Sideways Trend is defined by a series ofrelativelyqual hi'glhsnd relativelyqual lows. Stage 4Note: Every Sideways TrendeventuaUy breaksout or breaks down. In this case, a breakdownis what material:izedl, resultinq in a move to aStage 4 Down Trend.

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A Sideways Trend is defined by a series ofrelatively equal highs and relatively equal lows.

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~ There is only one Cycle ormovement a stock canmake. We call this the Unitor Atom.i ( ; ) This Cycle is largelycomprised of 4 stages (1,2,3 & 4).

\ ; 0 . 1 These 4 stages are madeup of 3 primary trends (Up,Down & Sideways).Each trend should have itsown matching tradingactions.

The PTT uses PristineESpTMTrend Scans to findthe powerful Stage 2 andStage 4 trends.

Stage 3Sideways TrendBuy & Sell

~- Sw.ing/Core Mode

Stage 2UptrendBuy Dips& BIOs

T ~

Stage 4DowntrendSen Rallies&BIDs

Guer ri lla r Ode

Staee 1Sideways Trend

Buy & SellStage I

Sideways TrendBuy & Sell

Use Pristine ESpTM Trend Scans


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Narrow Stage 1Narrow Stage 1----'--::-1-:-::-;:"'+~~~~~;;-___"=- Swing/Core Mode ~ -- - " " - : _ - - - .

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02. the foundation

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