ther Analytics Weekly Technical Conspectus Newsletter

User Guide Version 1.0

Author : Alex Bernal, CMT

alex@aetheranalytics.com

805.252.7161

Appendix Know your way around our charts Wave Analysis

One of the major pillars of our analysis is

based on wave swing analysis. Along the

lines of Elliot Wave theory we are monitor-

ing the 3 main wave structures in any given

market. Like the summary given in Edwards

and McGee Technical Analysis Book the

markets waves can be summarized by the

movements of the ocean. Tide, Waves &

Ripples. The Primary wave is the longest and

largest wave structure that represents the

longer term trend or macro tide of the un-

derlying movement. The secondary is the

internal wave structure that makes up the

primary. This is the most important wave in

our research because it offers the best pat-

terns in terms of frequency of appearance

and reliability. We can compare the sec-

ondary to the primary and find pinpoint ex-

act entry points to ride the longer term

trend. The Minor wave is the market ripple

or noise short term movement. Sometimes

the minor and secondary waves meet in

harmony in there behavior to form fractals

as well. We dont focus on trading the mi-

nor wave but will often illuminate when har-

monic fractals exist. Aether Analytics uses a

isolated wave approach with doesn't view

the always and everywhere rigid rules of

counting traditional Elliot Waves. We focus

on finding the most symmetrical in terms of

price and time structures and then apply a

systematic trading approach.

Appendix Know your way around our charts

Detrended Oscillator

The Detrended Oscillator takes the markets wave move-

ments and literally de-trends it into a normalized oscil-

lator graph. By essentially removing the up or down trend

element from its undulations we can identify points

where a market is most likely over extended in one direc-

tion in terms of ifs normalized movement. When we iden-

tify a overextension signal from the Detrended Oscillator

at the same time as we are finding harmonic or 3 wave

symmetry patterns it can produce some very accurate

reversal points. Used along side with our volatility bands

(which are calculated independently from the Detrend-

ed Oscillator) We can see points that are not only over

extended in terms of a markets natural movement but

also in terms its forecasted volatility boundary. We plot a

small red dot for overbought and small blue dot for

oversold points. But what also is very important to know

about this indicator is its ability to find momentum diver-

gence. For example in the chart shown there is a price to

momentum divergence between the December high

and the January high that also had an over extension.

This often signals to the termination of a current wave

swing and suggests a reversion to the mean is possible.

Appendix Know your way around our charts Swing Ratio Analysis

Another feature that you will see on our charts

is the swing ratio membrane. We showcase a

tool that shows the exact geometric ratio that

is relevant between any two swing points.

What we have found is that the market has a

undeniable symmetry in its unfolding move-

ment. Like many things in nature these ratios

are often based on the Phi or Pi mathematic

sequences. But they also can adhere to many

other sequences and geometric ratios such

as root 3, sacred cut, cubic reciprocals, Lucas

series.

Some common ratios we try to identify

0236

0.486

0.500

0.618

0.786

0.886

1.272

1.414

1.618

2.058

3.33

4.236

Appendix Know your way around our charts Chart Details

A) Aether Volatility Bands This is a proprietary band indi-

cator that overlays price. It essentially measures the cur-

rent market movement in terms of wave volatility and

plots 2 levels that are 1 and 2 standard deviations away

from its Natural Mean or central moving average. When

price moves beyond the 1 standard deviation bands we

view this as stretched motion in terms of its normalized

movement. If we get a movement outside the 2nd stand-

ard deviation this is a extreme signal that suggests that

market has made a very strong movement away from its

central mean and if it has a daily or weekly close beyond

the 3rd standard deviation band a mean reversion is high-

ly likely. Also when a market is in consolidation it will often

ping pong in-between the volatility bands which are

great for forecasting dynamic support and resistance

zones. These zone are much more predictive than the

typical Bollinger Bands or Keltner Bands and is a great tool

for visualizing the markets upcoming potential swing

movements

B) Pattern label and % distance from optimal PRZ

C) Pattern % retracement measuresthis number shows

the exact retracement % that the 2 wave swing has com-

pleted.

D) Instrument ticker symbol

Trade Entry Template Bullish Harmonic Patterns Once a harmonic pattern has been identified we measure out our typical suggested entry level. Since these trades by

nature are counter trend we dont want to just FADE into a

position. Meaning buying as price going down or selling as

price going up. We ideally want to catch the new trend as

price reverses in our expected direction.

For advanced traders we sometimes will comment on a

possible aggressive trade where a short call spread or put

spread could be utilized when the pattern is or has just

touched the PRZ. These are typically only noted when the

pattern structure is very high ranking and we have high

degrees of confidence in the trade.

For most (+80%) of our trades we will use the 0.236 of X-A re-

tracement level for a buy stop to entry for long trades. 0.236 is

derived from 0.382*0.618. With many years of testing we have

found this ratio to be fair enough in helping us assume the

pattern has reversed without being so close to the PRZ that it

has whipsaws. In certain cases where the pattern is very

lengthy in its X-A we will decrease the entry level 1 more de-

gree to 0.146 which is derived from 0.382 * 0.236. These are

rare and typically only in patterns we feel have a very high

probability of success.

Other entry techniques we support would be if after price

touched point D and has a Signal from a oscillator cross

over or a RSI crossing over 30, or any other indicator signal for

reversal confirmation this could be a great way to trigger an

entry. We like to not depend on indicators but only focus on

price but there are many ways to skin a cat.

Trade Entry Template Bearish Harmonic Patterns For bearish patterns the method remains the

same once we have successfully identified

and classified a pattern and its rank we

measure out 0.236 of X to A and place sell

stop to entry orders at this level. Again we

want to catch price as it starts to reverse

down and move into its perspective new

downtrend. As Carney put it the PRZ is like a

bus stop. When you are waiting to catch the

bus you dont just jump on it as it drives by

you wait for it to pull into the bus stop

(Potential Reversal Zone) your board it and

then it takes you where you need to go.

Trade Management & Initial Stop Loss Example Once we have successfully entered a trade. Then comes the art of risk management. We have devel-

oped a tool that lets us plot a ATR trailing stop calcu-

lation plot from any bar on a chart. Since many of our

trades are counter trend in nature is it important to

know where you exact risk levels should be if you are

attempting to enter a trade near the exact end of a

move. There are an array of different ATR trailing stop

settings that we often utilize. For markets that are his-

torically more volatile we suggest a smaller position

size in concurrence with a larger stop loss calculation.

We believe that the ATR approach for determining

stop levels has the advantage because it uses the

markets current volatility behavior to assess risk and

reward. When a pattern is first identified and a entry is

taken we show the exact levels that we suggest using

for the initial stop loss and target calculations. T1 is 2x

the 14 period ATR, T2 is 4X the 14 period ATR, and T3 is

6x the 14 period ATR. We have found these to be

great minimum potential movement targets. Markets

can often perform better than these levels but most

of the time they will at least hit these projections. As

you can also see as a trade matures the two stop loss

levels will plot along with price and show you where

the updated stop loss levels could be placed. Our

one main rule that we always follow is when price

meets Target 1 objective we always move stops to a

minimum of breakeven or (entry price plus commis-

sions) this way we protect profitable trades and pre-

vent any unnecessary losses if a pattern fails.

Appendix

Methodology & Strategy

Harmonic any component of a periodic oscillation whose frequency is and integral multiple of the fundamental frequency.

The periods of neighboring waves in price action tend to be related by the small whole number. - J.M. Hurst

Our aim with this report is to only focus on identifying the best possible trading patterns that are occurring in any given market. We utilize a variety of algorithms to find specific

geometric ratio wave patterns that have favorable risk to reward projected movements. Most of our trades are harmonic patterns and ideal symmetry elliott waves in the tradition

of H.M. Gartley, Larry Pesavento, Ross Beck, Scott Carney, R.N. Elliot, Ian Copsey & Bryce Gilmore. We blend all the best nuances that we have studied and thoroughly tested from

each of the noted analysts and have also developed some proprietary tools of our own for trade qualification, entry and management. In terms of Elliot Wave theory we analyze

waves in isolation for our primary trading time periods (daily & weekly). We dont believe in the subjective nature of manually counting elliott waves but rather only focusing on 5

and 3 wave patterns that have perfect symmetry in regards to time and price. In essence we focus only on waves we recognize to have high probability fractal structures.

Meaning only if specific geometric symmetry is identified we then investigate for a trade entry point. When the market is creating wave fractals that are not amongst our high

probability pattern repertoire no trade is taken or forecasted.

Common Newsletter Nomenclature

Pattern RankOur proprietary measurement system ranks patterns based on many variables within the internal structure as well as the macro technical environment (longer term

waves & trend). We will highlight these patterns but if the rank is too low we will not recommend a trade.

PRZPotential Reversal Zone, is also defined as our clearly defined level that a pattern must reach / test at least once in order to qualify as a harmonic pattern

Pattern NamesBAT, BUTTERFLY, GARTLEY, GARFLY, CYPHER, SHARK, ALT BAT, CRAB, DEEP CRAB These labels refer to specific harmonic 5 point fractal structures that appear in

the markets. Please refer to the USER GUIDE here > LINK (COMING SOON!) or full specifics and details for each pattern

Detrended OscillatorOne of the only 2 indicators we will refer to in our charts is the Detrended Oscillator this is a proprietary calculation and is very similar to RVALUE indicator laid

out by Mark W. Helweg & David C. Stendahl in there book Dynamic Trading Indicators. We have found this to be a great tool in analyzing the over extending to the up and

downside of a markets normal behavior. It is also very useful for finding divergence point between price and momentum.

Aethex Indicator Is another proprietary calculation alike to the commonly used Momentum Indicator. We have formulated a smoothing function that allows us to see a markets

momentum clearer and with less noise. This can be used for entry signals as well.

AppendixKnow your way around our charts

Trade Management

We primarily recommend trades that have a minimum of 3 to 1 risk reward ratio. Initial risk (stop loss) levels we often utilize are (ATR 14, 1.618), (ATR 21, 1.272), (ATR 14, 2.5) (ATR 21,

3.0) from the entry price or from the vertex of the pattern. Then a trailing stop from the current price is used with the ATR measures previously outlined. Entry technique is the only

somewhat subject process in our trading methodology. Users should always be aware that if a trade risk to reward ratio is less than 3:1 then the entry point, risk point or minimum

targets need to be revised. We always show 2 potential target areas for each trade which are based on the potential wave extension measurements. Once Target 1 has been

reached we recommend at a minimum putting the trade stop loss at break even. Typically we take 1/2 the position off at target 1 and trail stops until target 2 is reached or we get

stopped out.

Position Sizing

There are many different ways we suggest utilizing position sizing for your portfolio. For the purpose of this newsletter we will simply suggest our confidence rating in the context of

each trade. Our confidence ration stem purely from the pattern structure rank. When we mention Normal position size this is size that you have determined to be most optimal

individual trade position size for your specific risk tolerance and trade management style. We will suggest 1/2 (50%) of normal or 3/4 (75%) of normal for trades we have slightly less

confidence in & 6/4 (150%) or 8/4 (200%) for trades we have more confidence in. This is only a suggestion and should only be considered as opinion or commentary from us for

each trade. We never ever recommend betting the farm or going all in in any trade because it surely leads to ruin. One of our favorite portfolio position sizing formulas that we

recommend is the following:

Percent Volatility Sizing -{ Position Size = (CE * %PE) / SV }- Where CE is the current account equity (NAV of portfolio, %PE is percentage of portfolio equity to risk per trade (2%, 3% and 4% are recommended), SV is the stocks 14 day ATR

Contact

alex@whentotrade.com

+1.805.252.7161

Skype : alexbernal0

AppendixSuggested Reading / Study List

1. Chaos & Order in Financial Markets , Edgar Peters

2. Geometry of Markets I & II, Bryce Gilmore

3. Fibonacci Ratios with Pattern Recognition, Pesavento

4. Profits in the Stock Market, H.M. Gartley

5. The Harmonic Trader, Scott Carney

6. Harmonic Trading Vol. I & II, Scott Carney

7. Dynamic Time and Price Analysis, Bryce Gilmore

8. Kane Trading Series, Jim Kane Kanetrading.com

9. Trade What You See, Larry Pesavento & Leslie Jouflas

10. Fibonacci Analysis, Constance Brown

11. Gartley Trading Method, Ross Beck

12. Trade Chart Patterns Like The Pros, Suri Dudella

13. Elliott Wave Principle, A.J. Frost & Robert Prechter

14. Mastering Elliott Wave, Glenn Neely

15. Mastering Elliott Wave Principle, Constance Brown

16. Harmonic Elliott Wave : Ian Copsey

17. New Frontiers in Fibonacci Trading, Micheal Jardine

18. Fibonacci Trading, Carolyn Boroden

Affiliates

neoHarmonics.com

WhenToTrade.com

Ninjatrader.com

Author Bios

Alex Bernal, CMT Alex Bernal is a Chartered Market Technician with many years of industry experience in the equity, commodity, currency,

interest rate and derivatives markets. Alex also holds a degree in Economics from the University of Southern California.

Alex started his career at the Beverly Hills branch of Bear Stearns & Co. in the wealth management division. Then in 2007

he moved over to M&N Trading, LLC. where he joined the prop trading desk where he specialized in statistical arbitrage

in areas such as global yield curve spreads and STIR futures. Here he was mentored by Veteran Trader, Anthony Lazzara,

who was once the largest 5 year treasuries floor trader at the Chicago Board of Trade and executed as much as $100

billion in interest rate futures contracts annually. Alex founded Aether Analytics in 2009 with the intent on providing

premier technical analysis research to his clients with a focus only on the methods that have been proven to produce

quantifiable edge through he scientific research process. Aether Analytics deploys an approach that emphasizes on the

objective not the subjective and aims to reveal the repeating market fractal patterns that trader or portfolio manager

can utilized to manage risk or speculate for profit.

Alex has also been featured on many prominent news & financial blog networks such as CNBC, Bloomberg, CBOE TV,

Fxstreet.com, Seeitmarket.com, Benzinga.com, MTA.org, Yorba Media Radio & First Business News Network.

Travis Pavlik

Travis grew up in Paradise Valley, Arizona playing competitive golf across the country. He attended college at the

University of Arizona in Tucson majoring in Economics and Business. Here, he discovered his love for the financial markets

and economics. After a few years as a Sales Trader at Longboard Asset Management , which is a trend-following,

managed futures mutual fund and hedge fund, Travis decided to strike out on his own and become a independent

trader and technical analyst

Harmonic Pattern Quick Reference Guide

Trend direction

prior to X point

Retracement zone of A to B

length allowed

Underlined = *exact retrace-

ment of the A to X Length

Potential Reversal Zone

Area of tolerance where

price needs to touch before

pattern can be validated as

complete

Retracement of B swing in

terms of Length X to A

Extension Ratio zone for length

of B to C

*Level of Exact retracement tolerance can often be

allowed a few % degrees of freedom