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Copyright,LegalNoticeandDisclaimer:


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Copyright2011ByGavinHolmes.AllrightsreservedThispublicationisprotectedundertheUSCopyrightActof1976andallotherapplicableinternational,federal,stateandlocallaws,andallrightsarereserved,includingresalerightsNopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmittedinanyformorbyanymeans,electronic,mechanical,photocopying,recording,scanningorotherwise,exceptaspermittedundersection107or108oftheUSCopyrightActof1976,withouteitherthepriorwrittenpermissionofthepublisher.AllchartshereinareprovidedwiththepermissionofTradeGuiderSystemsInternational

(www.tradeguider.com)LimitofLiabilityandDisclaimerofWarranty:Thepublisherhasuseditsbesteffortsinpreparingthisbook,andtheinformationprovidedhereinisprovidedforeducationalpurposesonly.Thepublishermakesnorepresentationorwarrantieswithrespecttotheaccuracyorcompletenessofthecontentsofthisbookandspecificallydisclaimsanyimpliedwarrantiesofmerchantabilityorfitnessforanyparticularpurposeandshallinnoeventbeliableforanylossofprofitoranyothercommercialdamage,includingbutnotlimitedtospecial,incidental,consequential,orotherdamages.TradingStocks,Commodities,Futures,OptionsonFutures,andretailoff-exchangeforeigncurrencytransactionsinvolvessubstantialriskoflossandisnotsuitableforallinvestors.Youshouldcarefullyconsiderwhethertradingissuitableforyouinlightofyourcircumstances,knowledge,andfinancialresources.Youmayloseallormoreofyourinitialinvestment.Opinions,marketdata,andrecommendationsaresubjecttochangeatanytime.ISBN:978-0-9836268-1-7


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TradeGuiderVSATradeSetUp

Sequences

ACompanionGuideto

TradingintheShadowoftheSmartMoney

ByGavinHolmes


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BACKGROUNDABOUTVOLUMESPREADANALYSIS

ANDTRADEGUIDERSYSTEMSINTERNATIONALThis is a brief explanation aboutTradeGuider and the underlyingmethodology ofVolume

SpreadAnalysis.Wewillbeshowingexamplesofhowprofessionalactivityisclearlyvisibleinallmarketsandinalltimeframes,ifyouknowwhatyouarelookingfor.TradeGuiderisbasedonamethodologycalledVolumeSpreadAnalysis.VolumeSpreadAnalysis(VSA)isaproprietarymarketanalysismethodthatwasconceivedbyTom Williams (Chairman of TradeGuider Systems). VSA is utilized in the TradeGuidersoftwaretoanalyzeamarketbyobservingtheinter-relationshipbetweenvolume,price,andspread of the price bar (i.e. range of a price bar). This method is particularly good athighlightingimbalancesofsupplyanddemand.TradeGuiderwaspreviouslyknownasWyckoffVSA(VolumeSpreadAnalysis)andhasbeeninexistenceforover20years.TheuniquenatureofTradeGuiderisduetoitsbuiltinartificialintelligenceengine.Thesoftwareiscapableofanalyzinganyliquidmarket,inanytimeframe,and extracting theinformation itneeds to indicate imbalances ofsupply and demand onachart. Thus, TradeGuider is able to graphically show the essential forces thatmove everymarket.Thesoftware functions ineither Real-Time(RT) orEnd-of-Day (EOD)modes, and enablesuserstoseewhenprofessionalmoneyisentering,exiting,ornotparticipatinginthemarketthey are trading. This empowersTradeGuiderusers tomakemore intelligent, timely, and

informedtradingdecisions.TradeGuiderisarevolutionaryconceptthatcanbeusedonitsownor inconjunctionwithothertradingsoftwareplatforms,making itanidealchoicefordecision support and adding value to other proprietary data vendor platforms. TheTradeGuidersoftwarecombineseaseofusewiththebestmarketsupplyanddemandanalysis,currently available. The extensive Expert System has an innate understanding of marketdynamics, combinedwithvolume,whichmeans that it is capable of analyzing supply anddemandinanyliquidmarket.Theindicatorsaredisplayedautomaticallyonthechart.Thereisnoconfiguration,nosettingofparameters,andnooptimization.Itisourcontentionthatifanindicatorortradingrobotrequiresoptimizationtomakeitproducepositiveresults,itisbecausetheyarelagginginnature and thereforeneed results curve fitting inorder toproduce theexpected results.TradeGuiderontheotherhand,hasinbuiltlogicsignalsthatarecodedaroundvolume,whichis a leading indicator as opposed to a lagging one, and can therefore be applied to anytimeframe,withconsistentpositiveresults.ThesophisticatedunderlyingTradeGuidercodinghasanaugmentedsetofnovelproprietarytools,whichconfirmtradeset-upsastheyappearinanytimeframeandinanymarket.Aswesaidearlier,thisisnotanewconcept,andTomWilliamswhoinventedVSAwashimselfa syndicate trader who could see that themarketswere manipulated and that the key tounlockingthetruthlayintherelationshipbetweenthevolume,thespread(orrange)ofthe

bar,andtheclosingprice.TomspentmanyyearsstudyingtheconceptsofRichardWyckoffwhowasa trader during the1920and30s, andwhowrote several bookson theMarket,


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eventuallysettingupthe"StockMarketInstitute"inPhoenix,Arizona.Atitscore,Wyckoff'sworkisbasedontheanalysisoftradingranges,anddeterminingwhenstocksarein basing,markdown,distribution,ormarkup phases. Incorporated into thesephases are the ongoingshiftsbetween weakhands (publicownership)and composite operator ,now commonlyknownasSmartMoney.

TomleftBeverlyHillsintheearly1980sandwentbacktoEngland.Oncethere,hebegantoinvestigatethepossibilitiesofcomputerizingthesystemhehadlearntasasyndicatetrader.ThisbegantheevolutionofVolumeSpreadAnalysis.Togetherwithanexperiencedcomputerprogrammer, Tom carefully studied many thousands of charts to recognize the obviouspatterns that were left when professional or SmartMoneywas active. This methodology,althoughsimpleinconcept,tookmanyyearstowriteandisnowtaughtasamethodologycombinedwiththesoftwarecalledTradeGuider.VolumeSpreadAnalysisseekstoestablishthecauseofpricemovements.Thecauseisquitesimply the imbalancebetweenSupplyandDemandorstrengthandweaknessinany liquidmarket,whichiscreatedbytheactivityofprofessionaloperators,orSmartMoney.IfyouusetheTradeGuider softwareyouwill see that itdoes anexcellent job ofdetecting these keyimbalancesforyou,takingthehardworkoutofreadingthemarketsandenablingyoutofullyconcentrateonyourtrading.The significance and importance of volume appears little understood by most non-professional traders. Perhaps this is because there is very little information and limitedteachingsavailableonthisvitalpartoftechnicalanalysis.Touseachartwithoutvolumeissimilartobuyinganautomobilewithoutagasolinetank.

Forthecorrectanalysisofvolume,oneneedstorealizethattherecordedvolumeinformationcontainsonlyhalfofthemeaningrequiredtoarriveatacorrectanalysis.Theotherhalfofthemeaningisfoundinthepricespread(i.e.range).Volumealwaysindicatestheamountofactivitygoingon.Thecorrespondingpricespreadshowsthepricemovementonthatvolume.Many traders believe you cannot analyze volume in the FOREX markets because it isunavailable,butwewillshowyouhowtheTradeGuiderproprietarysystemcandosomethingthatmosttradersthoughtwereimpossible(Iwilldiscussmoreaboutthislater).Some technical indicatorsattempt tocombinevolume and pricemovements together.Restassuredthatthisapproachhaslimitations,becauseattimesthemarketwillgouponhighvolume,butcandoexactlythesamethingonlowvolume.Pricescansuddenlygosideways,orevenfalloff,onexactlythesamevolume!So,thereareobviouslyotherfactorsatwork.Priceandvolumeareinacomplexsynergisticrelationship,whichisthereasonTradeGuiderwasdevelopedinthefirstplace.Thesystemiscapableofanalyzingthemarketsinreal-time(orattheendoftheday)whiledisplayinganyoneof400indicatorson thescreentoshowimbalancesofsupplyanddemand.(Formoreinformationpleasevisitwww.tradeguider.com)


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CanYouMakeMoneyUsingThe

TradeGuiderVSASoftwareSystem?

DonttakeMYwordforit.ReadwhatTimRayment,thewinneroftheWorldCupTradingChampionship,hastosay.Hedidntwinonce,buthewontwice,tradingrealmoneyinreal-timeusingVolumeSpreadAnalysis.PleaseenjoythefollowinginterviewwithTimRayment,aswellasanexcerptfromthe1stbook,chapters1-4ofTradingIntheShadowoftheSmartMoney.

-GavinHolmes


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CHAPTER1

THEMEETINGTHATCHANGEDMYLIFE

Irememberthephonecallwell.ItwasanearlyMondaymorning,andmyPersonalAssistantAnnecameintomyofficetotellmethattherewasagentlemanfromYorkshireEnglandonherphone.Hehadseenoneofmye-marketingwebsitesandhadapropositionforme.IaskedAnnetofindoutmorebeforeputtingthecallthrough.Apparently,thisgentlemannamedRoyDidlockwasinvolvedinthedevelopmentofacomputerizedtradingprogramcalledWyckoffVolumeSpreadAnalysis.Theinventoroftheprogram,TomWilliams,aretiredsyndicatetrader,wantedtopartnerwithamarketingfirminordertobringhistradingsoftwaretoawideraudience.

Iknewnothingabouttradingorinvestingatthetime,butIwascurious,soItookthecall.Ontheotherendofthelinewasadeep,butpleasantvoicewithathickYorkshireaccent.RoybegantoexplainhowTomhadstartedthecompanyasahobby.Thisimpliedthattheyhadnomarketingbudget.RoyalsoexplainedthatthecompanyTomhadfoundedseveralyearspriortopromotetheprogram,GenieSoftwareLtd.,wasinterestedinpartneringwithamarketingoradvertisingagency.Theproposalwasthatthemarketingarmwouldtakeaprofitshareinreturnforitsservices.AttheoutsetIwasskepticalandsomewhatintriguedbyRoysapproach,soIaskedhimwhyhewasinterestedinmycompany.Roytoldmehepickedabout60companieshefoundontheInternet,andwewereoneofthosecompaniesthathadsuitablequalificationstosuittheir

purposes.Ithenaskedhowmanyphonecallsandvisitshehadmade,andwhattypeandlevelofresponsehehadreceived.Wewereoneofthelastcompaniesonhislist.Hehadadejectedtoneinhisvoice.Icouldsensethatitwasanissuetoworkwithoutamarketingbudget,andmostlikely,therehadbeenlittleornointerestinthesoftware.Atthispoint,alittlevoiceinmyheadurgedmetoinvitehimtocallonmeatmyofficetofindoutmore.InthosedaysmyofficewasinBeckenham,Kent,whichisapproximately400miles(530km)fromYorkshire.IaskedRoyifhehadabusinessplan,andwhetheritwaspossibleforhimtocomedownfromhisbaseupcountrytovisitmeatmyofficeinthesouthtodiscusshisproposal.Iwasabitsurprisedbytheobviousenthusiasmwithwhichhejumpedatmy

suggestion,andweetameetingthefollowingweek.RoyinformedmethathewouldbebringingalongTomWilliams,theinventoroftheprogram,toexplaintomehowthefinancialmarketsreallywork.Iwasfascinated,tosaytheleast,sothenextfewdayspassedbyveryslowlyasIeagerlyanticipatedthefollowupmeeting.RoyandTomarrivedearlyandwereaskedtowaitintheboardroom.Thedaywasalreadyhecticwithmyextremelybusyexhibitiondesigncompanyande-marketingbusiness.IfeltthatIcouldgiveRoyandTom45minutesoutofmychaoticdayforthemtoshowmethebusinessplan.Thatshouldbeenoughtime,Ithought.Iwouldmeetwiththembrieflynow,takeitaway,anddigestitscontentlater.

AsIenteredtheboardroom,Inoticedbothmenwereverywelldressed.Roygreetedmefirstandeagerlyshookmyhand.Hestruckmeasbeingsomewhatillatease,butwentontoreveal


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thatheusedtoworkforErnstandYoungCapGemini,oneoftheworldslargestmanagementconsulting,outsourcing,andprofessionalservicescompanies.RoythenquicklyturnedtointroduceTomWilliams.TomatfirstglancewasanelderlygentlemanthatIestimatedtobeinhisearly70s.Heimpressedmeashighlyalertandarticulate.

Thiswasgoingtobeaninterestingmeeting!Royhandedmetheirbusinessplan.Itwaswellpreparedandhighlyorganized.Hethenbeganhispresentation.AsImentionedbefore,Iknewverylittleaboutthefinancialmarketsatthattimeandunfortunately,afterabout15minutes,IceasedtohavethefaintestideawhatRoywastalkingabout!Iwasabouttocallthemeetingtoanendsincemydaywasalreadyverybusy,butTom,ontheotherhand,wouldnotletthathappen.HehadalreadynoticedmybodylanguageduringthepresentationandasIwasjustabouttospeak,thedistinguishedgentlemanhelduphishand.Withaglintinhiseyeandhandintheair,Tomsaid,Stop!Roy.Hethensaid,Gavin-letsgobacktothebeginning,andletmeexplaintoyouhowthemarketsreallywork!Withnohesitation,Tombegantoexplainthemarketstome.AllfinancialmarketsmoveontheuniversallawofSupplyandDemand.Whenyousaythistoanytraderorinvestor,theywillnodinagreementandsayWellthatsobvious,tellmesomethingnew!However,whattheydonotunderstandishowtocorrectlypullthisinformationoutofapricechart.Ihavedeveloped,overmanyyears,acomputerprogramcalledWyckoffVolumeSpreadAnalysis,orWyckoffVSA,thatdoesexactlythat.ItextractstheSupplyandDemandinformationonacharttogiveclearsignalswhenthebigplayers,orwhatIcallSmartMoney,areveryactiveorinactive,sotheusercantradeinharmonywiththeirmoves.

Tomcontinued,Youknow,Gavin,themarketsdonotmovebyaccident!Theyarenotrandomasmanytradersandinvestorsthink.Theyare,however,deliberatelymanipulatedtowrong-foottheunsuspectingherd,inotherwords,theuninformedtraders.IfyoucanreadSupplyandDemandbyanalyzingvolume,youwillgiveyourselfadistincttradingadvantageovertheuninformedandunsuspectingherd,inordertopositionyourselfwhereyoutoocantradeinharmonywithwhatsgoingon!Themarketsaremanipulated?Igasped.CmonTom,Isaidnaively,WehaveregulatorybodieshereinEnglandthatpreventallthat.Ihavefriendsinthecitywhotradeandtheywouldlaughifyoutoldthemthat!Tomlookedatmeintenselyandsaid,Ifyoudontbelieveme,letmeshowyouonthecharts.Youreyeswillbeopenedtothemanyopportunitiesonofferifyoucaninterprettheactionofthemanipulators.Iwasspellbound.ThisfellowclearlyknewsomethingthatIdidnot.SoIlethimcontinuewithmynextquestionbeing,Sohowdoyouknowallthis?(Therewasareasonwhyhewasabletoretireat40averywealthyman,asIwastofindoutlater.)WellGavin,inthelate1950s,IdecidedIwantedtomakemoney.Seriousmoney.IwasinmylatetwentiesthenandIhadjustsoldmypopularcoffeebar,theWhiskyGo-GoinBrighton

IwasalsoaqualifiedregisterednursesoIfiguredIwouldmakemywaytoBeverlyHills,inCalifornia,sincethatwaswherethemoneywas.AndthatsexactlywhatIdid.


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WhenIarrivedintheUnitedStatesIwasfortunateenoughtoregisterquicklyinCaliforniaasanRN(RegisteredNurse)andjoinedanagencyinBeverlyHills.Oneofmyearliestassignmentswiththisagencywasworkingforthefamilyofaverywealthyoiltycoonandtradingsyndicatemember.Thefamilywasdeeplyworriedaboutthisindividual,(whoIwill

refertoasGeorge)becausehehadadrugaddictionneedingtobecontrolled.Thefamilybelievedthatafull-timeRegisteredNursewasnecessarytomonitorhisbehavior.Iinterviewedforthepositionandwaschosenshortlyafterwards.GeorgewasthebossofanelitegroupoftradingsyndicatesintheUnitedStates.Duringthattime,theytradedmostlytheirownmoneyandsomemoneyforothersinthestockmarket.Theyweresuccessful,buttheyshunnedpublicity.Thatwastheirnature,whichisprobablywhyveryfewpeopleevenknewoftheirexistence.TheirbasicstrategywastotargetcompanystocksandremovewhattheycalledtheFloatingSupplyofthatstockifanyofitwasavailableontheopenmarket.Thisprocesscouldtakemonths,sometimesevenyears,buteventually,thesyndicatewouldbeinmajoritycontrolofthatstock.Thisphaseofbuyingisknownasaccumulation.Whengeneralmarketconditionsappearfavorable,thesyndicatecanthenmarkupthepriceofthestock,whichissurprisinglyeasysincetheyhaveremovedalltheFloatingSupplyandResistancetohigherprices.Thismeansthatthesellersofthestockhaveallbutdisappeared.Itfollowsthatthereisthusverylittlestockleftthatcanbesoldoncetheirpricerallycommences.Atsometimeinthefuture,apointwillbereachedwhenthesyndicatewilltakeadvantageofthehigherpricesobtainedintherallytotakeprofits.Thistheydobybeginningtosellthestockbacktotheuninformedtraders/investorsoftencalledtheHerd.Thisisnow

calledthedistributionphase.Atthispoint,ahandsomeprofitwillbemadeforthesyndicateanditsmembers.IaskedTomhowthesyndicatewouldgettheHerdtobuystockatmuchhigherpricesthanwhatthesyndicatehadoriginallypaid.Tomjustgavemeabigsmileasherememberedthemomenthewasabouttosharewithme.WellGavin,hesaid,Icanremember,veryclearlyactually,aparticularU.S.stockwhichIbelieveisstillaroundtoday.Atthattime,theywerecalledTeledyneTechnologies(TDY).Oursyndicatehadheavilyaccumulatedthemanditwastimetotakeprofits.Toacquirethis,anytricksarefairgame.Forexample,wewouldtargettheannualgeneralmeetingsandaskbullishquestionsthatwouldoftenbereportedtothemediathenextday.Wewouldcreateasmuchpositivenewsaspossibleinordertogetthecrowdexcited.Trueornot,itwasirrelevanttous,aslongaspeoplewerebuyingthenowhigh-pricedstockfromthesyndicate.ThiswasveryprofitablebusinessandisoneofthebasicreasonswhythereareBullmovesandBearmovesinthemarkets.ItsSupplyandDemandworkinginthelongerterm.Ironically,thedirectorsofmostcompaniesbarelyhaveanideaofwhytheirstocksmoveupordown.Mostwilloftenshrugtheirshouldersifaskedwhytheirstockhadjustfallen10%.Theywillhavenocluewhytheirstockdeclined,especiallywhenthecompanyisinbettershapenowthanthepreviousyear.Tothemthereappearstobenologicalreasonwhythese

moveshappen.However,thesyndicatesknowbettersincetheywereactivelyinvolvedintradingthesestocksupanddown!


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ThemoreTomexplainedthemechanicsofhowthefinancialmarketsoperated,themoreabsorbedIbecame.The45-minuteturnedpleasantlyintoanhourand45minutes,andbeforelong,lunchtimewasuponus.IinstructedmyPersonalAssistanttocancelallmyafternoonmeetingsbecauseIhadafeelingthiscouldbesomethingpotentiallyverybig.Andnow,asI

writeaboutthisimportantevent9yearslaterin2011,howrightIwas!TheTradeGuiderjourneyhadbegun.Backthen,littledidIknowit,butTomwasgroomingmetobehisprotg.Iwastolearneverythingheknewandhewouldteachmetoreadthechartsjustlikehedid.TomwenttoBeverlyHillstofindhisfortunewherehemetGeorge,gainedhistrustandconfidence,andbecameanestablishedmemberofatradingsyndicatethatunderstoodandplayedthegameonlyinsiderstrulyunderstood.ItwasntlongbeforeTomwasaskedtostarthanddrawingthechartsthesyndicateswouldusetomaketheirspeculativeattacks.Onhisownadmission,Tomshanddrawnchartswereaworkofart.Itturnsoutthathewasanaturalwhenitcametodrawinganddetail.ThemoreTomgotinvolvedwithchartingthevariousstockshand-pickedbythesyndicate,themoreinquisitivehebecameaboutwhatwasgoingonwiththepricemovement,thevolume,andwherethepriceclosed.Tomconstantlyaskedthetradersinthesyndicateforinformation,buttheywerefartoobusymakingmoney.Sofinally,theydecidedtosendTomtotheWyckoffChartReadingCourseinParkRidge,Illinois,justoutsideofChicago.Itwasherethathefinallygotagriponwhatwashappening.Tomrealizedthatallclueswereinthechartsifyouknewhowtoreadthemcorrectly.

TomspenttwelvehappyandprosperousyearswiththesyndicateinBeverlyHills,andtraveledallovertheU.S.networkingandmeetingmanyinterestingpeople.Bytheageof40,TomhadmadeenoughmoneytolivetherestofhislifeverycomfortablyanddecideditwastimetomovebacktoEngland.Thenduringhismid-forties,hepurchasedafacilityforretiredfolksohecouldcontinuehisnursingandfulfillhispassionforhelpingothers.Tomcontinuedtotradeaswell,butbecameconsumedwithalltheknowledgehehadlearnedfromthesyndicateanditstradersbackintheUnitedStates.ThiswasalsothetimewhencomputerswerebeginningtobecomemorereadilyavailabletothegeneralpublicTomhadabrilliantidea,whichhespenttherestofhislifedevelopingandimproving.HewantedtocomputerizetheWyckoffMethodandtheknowledgehehadgainedfromthatstudytoproduceautomatedtradingsignalsthatdidnothavetorelyonhumanintervention.TomscouredlocallyinTorquay,Devon,UK,tofindaprogrammerskilledenoughtointerprethisspecificinstructions.ThecomputerwouldneedtoidentifybuyandsellsetupsusingVolumeSpreadAnalysis.Thismethodofanalyzingthemarketdoesnotusepastpriceformulas,whichneverseemtowork.Tomwasonlyinterestedin: TheVolume(i.e.activity), TheSpread(i.e.rangeofthepricebar) TheClose(thepointwherethepriceclosesonthecurrentbar.)


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Itsthepointwherethebarclosesthatisthemostimportantofthethreekeyanalysisfactors.Pricecloseseitheratthebottom,themiddle,orthetopofthecurrentbar,andassuchisconsideredextremelysignificanttotheanalysis.

Bygoodfortune,Tomstumbledacrossanewspaperadvertisementforprogrammingservicessituatedclosetowherehelived.Heimmediatelyarrangedameeting.Tomwasstillunsureaboutwhetherhisideaswereabletobeprogrammed,letalonegivetheaccuratetradesetupsthismethodologyproduced.Itwasagreedwiththeprogrammer,RobertHarwoodthattheywouldatleastgiveitatryandseewhatwouldhappen.Withinweeks,thefirsttenindicatorswereprogrammedin,andtotheirutteramazement,theyworked!TheindicatorsgaveclearandaccuratesignalsofimbalancesofSupplyandDemandastheyappeared.Astheweekswenton,theindicatorsgrewinnumberandwererefinedmanytimesover.Asthesoftwareprogressedtothepointofbeingausableprogram,arumorspreadamongstTomstradingfriendsabouthisnewprogramanditsastonishingaccuracy.Hebegantosellthesoftwareforasmallfeetohisclosefriendsandcolleaguesinthebusiness.FromtheseearlyseedscamethefirstversionofWyckoffVSAVersion1fromGenieSoftwareLtd.,andthelatestincarnationaptlynamed,TradeGuiderRealTimeandEnd-of-Day(EOD)softwareprogram.Tomsworkwasclearlygroundbreakingandhadenhancedtheexcellentworkofearly1900straderRichardDemilleWyckoff.Amongstotherthings,thismanrecognizedthattapereading

wasthekeytobecomingasuccessful,profitabletrader.Idecidedthatthiswasanopportunitynottobemissed.Tomleftthemeetingonasombernote.Helookedatmeandsaid,Gavin,alwaysrememberthatthemarkethastohavemorelosersthanwinners.Itisdevious.Ihaveneverheardthetruthaboutthemarketthroughthemedia.LetmegiveyouTomsexampleofthis:the9/11attacksontheWorldTradeCentre.Ifyourecall,themarketsclosedforaweek.Duringthatentireweek,thenewswashorrific,especiallythenewsaboutthefutureperformanceofthefinancialmarkets.Oncethemarketsopened,theydidindeedplummetandmanymediasourceswerepredictinganinevitableBearmarket.Grim-facedreporterslookedatyoufromthetelevisionscreens,tellingyouthatbillionsofdollarswerebeingwipedoffthemarkets,andthatacollapsewasinevitable.Onthesurface,thisnewsmayhavebeenpartlytrue,butthegeneralpublicwillneverbetoldthewholetruth.Itishighlylikelythattheself-regulatedexchangeswereonlytooawarethatalltheirtraderswerefranticallybuyingfromthepanickingsellersbecauseabargainwastobehad.Amoretruthfulmediareportshouldhavesaidthis:Goodeveningladiesandgentleman.Asyouknowthemarketshavere-openedtodayandpriceshavefallenrapidlyasPresidentBushandPrimeMinisterBlairhavewarnedoffurtherattacks.Thisishavinganegativeimpactonstockpriceseventhoughon10thSeptemberthesecompanieswereinthesameshapeastheywereon12thSeptember,sothispanicsellingseemssomewhatirrational.


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Thegoodnewshoweveristhatwehavedirectcontactwiththeinsidersandmarketspecialistsonthevariousexchangefloors,andtheyhavetoldusthattheirtradersarebusybuyingeverythingthatisbeingsoldbythepanic-strickenHerd.YouwillseeinaweekortwothatthismarketisnotBearishatall,butBullish,andwillriserapidlyasstocksandotherinstrumentshavepassedfromweakholderstostrongholders.

Thiswillbeclearfromthemassivevolumetothedownside.Notethatthebarhasclosedinthemiddle,notonthelow;thisindicatesthatbuyingmustbetakingplace,andtherefore,contrarytowhatthenewsisimplying,priceswillgoup,notdown."Afterthisexample,Tomsaid,Gavin,thisisanongoingprocessinvaryingdegreesofintensity.Remember,thechartneverliesifyoulearntoreaditcorrectly-andthatiswhatIwillteachyou.Afterthatday,Icontactedmybusinesspartner,RichardBednall,andtoldhimofthisgreatopportunity.Aftersomeduediligence,andspeakingwithsomeofthecitytradersIknew,wewereconvincedthatthiswasamostworthwhileventurethatwouldhelpretailtradersandinvestorstostarttoleveltheplayingfield,andgivethemtheopportunitytomakemoneyinharmonywiththemanipulators.AndsoTomdidteachme,andmylifechanged.IbegantoseethingsIhadneverseenbefore.Ibegantoreadthechartasamusicianwouldreadmusic.Ifeltenlightenedandopenminded,seeingthingsforwhattheyreallywere,andnothowtheyarereportedinthemainstreammedia.IpromisedTomIwouldhelphimcontinuehisworktoshowunenlightenedtradershowtofindthetruthandtherebybecomeprofitableinthemarkets.

Sowiththatsaid,Ihopeyouenjoythisbook.Ialsohopeyoureaditmorethanoncetrulytoembracetheknowledgeimpartedwithin.


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CHAPTER2

THEGAMEONWALLSTREET:MARKETMANIPULATION

OnMay6th,2010somethingverystrangehappenedinthefinancialmarkets.ThisdayisnowreferredtoastheFlashCrash.EvenasIwriteaboutthismorethan6monthsafterthateventfulday,nocredibleexplanationhasbeenprovidedbytheregulatoryauthoritiesastoexactlywhatcausedthecrashorwhowasresponsible.Infact,manyinvestorsbegantosuspectthatallwasnotwhatitseemed.CBNCsClosingBellanchorMariaBartiromowasreportingonthedaytheFlashCrashhappened.BelowisatranscriptoffellowreporterMattNestoexplainingtoBartiromosomeunusualanomaliesinanumberofstocks,eventhoughthemainstreammediaclaimedthatit

wascausedbyalonetraderfromamajorbankinginstitutionhittingthewrongbutton.BforbillionwasenteredinsteadofanMformillionwhiletradingtheCMEE-MiniS&PFutures!Theconversationwentasfollows:(TheconversationisalsoavailabletoviewonYoutube.com.TypeinMariaBartiromo,MarketManipulation)NESTO:ApersonfamiliarwiththeCitiinvestigationsaidonefocusofthetradingprobeswerethefuturescontractstiedtotheS&P500stockindexknownastheE-miniS&P500futures,andinparticular,thattwo-minutewindowinwhich16billionofthefuturesweresoldAgain,thosesourcesaretellingusthatCitigroupstotalE-minivolumefortheentiredaywasonly9billion,suggestingthattheoriginofthetradeswaselsewhere.

Nestonamedeightstocksthatwerehitwiththesupposedcomputererror/badtradethatwentallthewaydowntozerooronecent,includingExelon(NYSE:EXC),Accenture(NYSE:ACN),CenterPointEnergy(NYSE:CNP),EagleMaterial(NYSE:EXP),GenpactLtd(NYSE:G),ITCHoldings(NYSE:ITC),Brown&Brown(NYSE:BRO),CaseysGeneral(NASDAQ:CASY)andBostonBeer(NYSE:SAM)NESTO:NowaccordingtosomeoneelseclosetoCitigroupsownprobeofthesituation,theE-MinistradeontheCME.NowMaria,Iwanttoaddsomethingelse,justintermsoftheseerroneoustradesthatDuncanNiederauer;theNYSECEOwasjusttalkingabout.Imean,wevetalkedalotaboutAccenture,ACN.ThisisaDublin-basedcompany.It'snotinanyoftheindexes.IfyoulookintheS&P500,forexample,Ishowatleasttwostocksthattradedtozeroor

onecentExelonandCenterPoint.IfyoulookintheRussell1000,IshowEagleMaterials,Genpact,ITCandBrown&Brown,alsotradingtozeroorapenny,andalsoCasey'sGeneralStores,aswellasBostonBeertradingtoday,intraday,tozeroorapenny.Sothosehaveatleasteightnamesthatthey'regoingtohavetotrackdownontopoftheAccenturetrade,wherewehavethestockpriceintradayshowingusatleast,we'llassume,abogustradeofzero.

WhenMattNestocalledthesetradesbogus,hostandCNBCveteranMariaBartiromolookedshockedandalittleangryandreplied:BARTIROMO:Thatisridiculous,Imeanthisreallysoundslikemarketmanipulationtome.Thisisoutrageous.

AccordingtoNesto,thesearefrequentoccurrences,atleastattheNASDAQexchange,andifyoumakeatradeandlosemoney,theresnorecourse.NESTO:Ithappensalot,Maria.Itreallydoes.Imean,wecouldprobablyasktheNASDAQ,theymaynotwantto


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sayhowoftenithappens,butithappensfrequently.Andtheygobackandtheycorrect.Andthethingthatstinksisifyou,ingoodfaith,putinatradeandmademoneyandthenlostit,youloseit.Andthere'snorecourseandthere'snowaytoappeal.WhenIcalledTomWilliamsaboutwhathappenedandImentionedthatCNBChadactually

reportedthetradingactivitythatdayasmarketmanipulation,Tomlaughedandsaidjokingly,IbetthereisasignalinourTradeGuidersoftwareprogramshowingwhatwecallaShakeout.Tomyamazement,Iopenedtheprogramandthereitwas.ThesignalwasaTradeGuiderproprietarysignalcalledStrengthNumber87andthesoftwaresonboarddialogueboxexplainsthesignalasfollows:SOS87SHAKEOUT

NOTE:None.BarDescription:A'Shakeout'isamarkdownonawidespreadclosingupnearthehightoshakeoutweakholders.Ifvolumeislow,thensupplyhasdriedup.Highvolumesuggestsdemandovercamethe

supplybutrememberthissupplywillholdbackfutureupwardprogress.Ifthespreadisnarrowitwillhavelessimpact.

Thisparticularsignalismoregeneralanddoesnotneedtoclosenearthehighofthebar.Exercisecautionifthebarhasgappeddownasthiscanindicatehiddenweakness.IfvolumeisUltraHigh,thiscanbeclimacticactionandthestartofaccumulation.

Background:Thebackgroundisextremelyimportant.Youshouldseestrengthinthebackgroundwithstoppingvolumeorasellingclimax.IstheresomeminorSOWinanuptrendorhassupplyhitthemarket?

Future:A'Shakeout'onlowvolumeisreallyaviolenttestandhasthesameeffect.Itshowssupplyhasdisappearedandyouwouldthenexpecthigherprices.A'Shakeout'onhighvolumeshowsdemandwaspreparedtoabsorbthesupplyonthatbarbuttheywilllikelywanttotestthatsupplyinthefuture.AnylowvolumetestingbackintotheareaoftheShakeoutwouldbeastrongSOS.Becautiousifthe'Shakeout'isfollowedbylowvolumeupbars,orhighvolumeupbarsclosinginthemiddle,especiallyonanarrowspread.Ifthemarketstartstowhipsawandgoessideways,itmaybebuildingacauseforthenextupmove.Remember,youneedtolookattheoverallpicturenotjusttheindividualbars.copyrightTradeGuiderSystems,2009


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CHARTVSAINTRO

WhatwewitnessedonthatMay6thwasagiantShakeoutofthemarket.TheSmartMoneyoperatorswereexpectinghigherpricesandwantedtocatchallthestopsbeforemovingthe

priceup.Theywerebullishandstocksweregoingtorise,andofcourse,theywantedtobuyatthebestpossibleprice.Imean,wouldntyoudothesame-buyatthelowestpriceknowingyoucouldsellitlaterformuchmorethanwhatyouboughtitfor?ThatsTheGameonWallStreet:Buylow,Sellhigh.Beapredator,acleverpredatorthatunderstandsexactlyhowthepreythinkandact.Itslikeherdingsheep,steeringthem,roundingthemup,andthenplacingtheminapen.Whetherweadmititornot,humanbeingsareconditionedtoactasaherdandthemediaunwittinglyplayakeyroleinhelpinginvestorsandtradersformanopinionabouttradedinstrumentssuchasstocks,commodities,futures,orevenForex.Likeatwistedversionof

masshysteria,whenmedia-inducedopinionsabouttradedinstrumentsarewrong,andthemajorityoftheuninformedHerdbelievethem,itwillcostthemdearly.SmartMoneyplayersknowhowyouwillactasaninvestorortrader.Theyknowhowtosteeryou.Theyknowthetwomostpowerfulhumanemotionsaregreedandfear,andthoseemotionsareourworstenemieswhenitcomestomakinginvestmentortradingdecisions.AsMarkTwainoncesaid,Ifyoudonotreadthenewspaper,youareuninformed,andifyoudoreadthenewspaper,youaremisinformed.Laterinthisbookwewillexaminewhymarketstendtodotheoppositeofwhatanynormalpersonwouldexpect.WewilllookatwhyBritishPetroleumstockwasagreatbuyonJune25th,2010,whentheoilspillcrisisintheGulfofMexicowasatitsworstandtherumorsofBritishPetroleumgoingoutofbusinesswererife.I

willalsoshowyouhowtoidentifyprofessionalbuying(theSmartMoney)onapricechart.Youwillbeabletorecognizeandprofitfrombuyingattherightprice,despitethebadnews


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andrumorsallaroundyou,andwhennottobuyorgoshortwhenallthenewsisgood.Foranexample,wewillexaminetheU.S.stock,JPMorgan,bylookingatgreatearningsreportsandfundamentals,whichwouldcreatepublicexpectationofhigherprices,andthenshowanimmediatedropinthestockprice,whichinfactoccurred!

Soyoumaybeasking,IsMarketManipulationagoodthingorabadthing?Ifeelthatifyoucanreadachartcorrectly,thenthevolatilitycausedwhenmarketsaremovedisaverygoodthingbecauseaneducatedchartreadercanseewithclaritytheintentionsofthemanipulatorsthustradinginharmonywithwhatshappening.Youmayalsowonder,AretheMarketManipulatorsevilbeingsintentonstealingyourmoney?Idontbelieveso.Thesearecleverindividualswhounderstandhumannatureandmarketstructure.Likemostwhoaresuccessfulinanyendeavor,theyviewtheiractivityasagame,andhaveacquiredtheknowledgeandpracticedskillsrequiredtowin.Likesuccessfulpokerplayers,theysimplytakeadvantageofopportunitiesthatariseincertainsituations.Theseindividualshavethefinancialsupremacyandunderstandingofthefinancialmarkets.Theyhaveanedgeovertheretailinvestorortrader,andtheyusethistotheiradvantagetomakeprofitsandgainfortheirownaccounts.Atthispointyoumaybethinking,Whyisthischapterrelevanttomakingmoneyinthemarkets?Whycantwejustgostraighttothechartsandallthesetups?Well,thereasonitsvitalandimportanttoknowthisinformationisbecauseinordertowinthegame,youmustfirstacceptitexistsandunderstandit.Theaverageretailtraderwhodoesnotacceptthisrealitycallstomindanotherpokermaxim:Ifyousitdownatthetableanddontknowwhothepatsyis,yourethepatsy.IdidnotinitiallyacceptthisasrealitywhenIfirstmetTom,butasIbegantoexaminethefinancialmarketsclosely,Inoticedconsistentpatterns.The

chartsalwaysappearedtobeatoddswithwhatwasontelevisionandwhatwasreportedinthefinancialpress.Later,IwillshowyoutwothingshappenedthatbothconfirmedmythoughtsandincreasedmyinterestintheteachingsofTomWilliamsandhismethodologyofVolumeSpreadAnalysis.OnDecember22nd,2006avideowasproducedanduploadedtowww.youtube.com.Itbecameverycontroversial.Manyattemptsweremadetoremoveitfromthepublicdomain.ThisvideowasaninterviewwithJimCramer,thehostofCNBCsMadMoney.JimCramerisabestsellingauthorandformerHedgeFundManager,aswellasbeingtheco-founderandChairpersonofwww.TheStreet.com.Inthisvideo,Cramerrevealshowhewasabletoinfluencepricesofseveralstocks,includingAppleandRimm(ofBlackberryfame).Belowisapartialtranscriptoftheinterview.Ihavehighlightedthepartsthatwillbeinterestingforyoutonote.(Thefullinterviewisavailableonwww.youtube.com.SearchJimCramer,MarketManipulation.)Verbatim(partial)transcriptofJimCrameronWallStreetConfidentialDec.22nd,2006:Youknow,alotoftimeswhenIwasshortatmyHedgeFundwhenIwaspositionedshort,meaningIneededitdownIwouldcreatealevelofactivitybeforehandthatcoulddrivethefutures.Itdoesn'ttakemuchmoney.Similarly,ifIwerelong,andIwantedtomakethingsalittlebitrosy,Iwouldgoinandtakeabunchofstocksand


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makesurethatthey'rehigher.Maybecommit$5millionincapital,andIcouldaffectit.Whatyou'reseeingnowismaybeit'sprobablyabiggermarket.Maybeyouneed$10millionincapitaltoknockthestuffdown.Butitsafungame,anditsalucrativegame.Youcanmoveitupandthenfadeitthatoftencreatesaverynegativefeel.Solet'ssayyoutakealongertermviewintraday,andyousay,"Listen,I'mgoingtoboostthefutures,andthewhentherealsellerscomeintherealmarketcomesinthey'regoingtoknockitdownandthat'sgoing

tocreateanegativeview."That'sastrategyveryworthdoingwhenyou'revaluingonaday-to-daybasis.Iwouldencourageanyonewho'sinthehedgefundgametodoitBecauseitslegalandaveryquickwaytomakemoneyandverysatisfying.Bytheway,nooneelseintheworldwouldeveradmitthat.ButIdontcare,andImnotgoingtosaythatonTV.Inthenextsectionoftheinterview,Cramerisdiscussingwhatstrugglinghedgefundsdotoimprovetheir

performancesbeforetheendoftheyear.It'sreallyvitalthesenextsixdaysbecauseofyourpayday,you'vereallygottocontrolthemarket.Youcan'tletitlift.WhenyougetaResearchinMotion,(RIMM)it'sreallyimportanttousealotofyourfirepowertoknockthatdown,becauseitsthefulcrumofthemarkettoday.So,letssayIwasshort.WhatIwoulddoisIwouldhitalotofguyswithRIMM.

Nowyoucantfoment.Thatsaviolation.Youcantcreateanimpressionthatastocksdown.ButyoudoitanywaybecausetheSECdoesntunderstandit.ThatstheonlysensethatIwouldsayisillegal.Butahedgefundthatdnotupalotreallyhastodoalotnowtosaveitself.ThisisdifferentfromwhatIwastalkingaboutatthebeginningwhereIwastalkingaboutbuyingtheQQQsandstuff.Thisisactuallyblatantlyillegal.Butwhenyouhavesixdaysandyourcompanymaybeindoubtbecauseyou'redown,Ithinkit'sreallyimportanttofomentifIwereoneoftheseguysfomentanimpressionthatResearchinMotion(RIMM)isn'tanygoodbecauseResearchinMotion(RIMM)isthekeytoday.

CramergoesontotalkabouttheactualmechanicsofwhatonewoulddotoknockResearchinMotiondown.Thenhecontinues:IfIwantedittogohigher,Iwouldtakeandbid,takeandbid,takeandbid,andifIwantedittogolower,I'dhitandoffer,hitandoffer,hitandoffer.AndIcouldgetastocklikeRIMMformaybethatmightcostme$15to$20milliontoknockRIMdownbutitwouldbefabulousbecauseitwouldbeleaguerallthemoronlongswhoarealsokeyingonResearchinMotion.Sowe'reseeingthat.Again,whenyourcompanyisinsurvivalmode,it'sreallyimportanttodefeatResearchinMotion,andgetthePisanisoftheworldandpeopletalkingaboutitasifthere'ssomethingwrongwithRIMM.ThenyouwouldcalltheJournalandyouwouldgettheBozoreporteronResearchinMotionandyouwouldfeedthatPalmsgotakillerthatsgoingtogiveaway.Theseareallthethingsyoumustdoinadayliketoday,andifyourenotdoingit,thenmaybeyoushouldntbeinthegame.

Cramertalksforawhileinconsiderabledetailabouthow,ifhewereshortApple'sstocktoday

hewouldknockApple'sstockdown.Thenhesays:Whatsimportantwhenyoureinthathedgefundmodeistonotdoanythingremotelytruthfulbecausetruthissoagainstviewthatitsimportanttocreateanewtruthtodevelopafiction.

Aminutelater,whentalkingabouthowcompanyfundamentalsdon'tmatter,Cramersays:Thegreatthingaboutthemarketisithasnothingtodowiththeactualstocks.Now,maybetwoweeksfromnow,thebuyerswillcometotheirsensesandrealizethateverythingthattheyheardwasalie,butthenagain,FannieMaeliedabouttheirearningsfor$6billion,sothere'sjustfictionandfictionandfiction.

Ithinkit'simportantforpeopletorecognizethatthewaythatthemarketreallyworksistohavethatnexusof:Hitthebrokeragehouseswithaseriesofordersthatcanpushitdown,thenleakittothepress,andthengetiton


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CNBCthat'salsoveryimportant.Andthenyouhaveakindofaviciouscycledown.It'saprettygoodgame.Itcanpayforapercentageortwo.END

OnMarch12th,2009,JimCramersYouTubevideocamebacktohaunthimasexcerptswere

finallyplayedonnationaltelevision.Itwasntonthefinancialnetworksasonewouldexpect,buttheseexcerptswereplayedonComedyCentralinanexcellentinterviewontheDailyShowwithJonStewart.JonStewartiswellknownintheUnitedStatesfornotmincingwordsandbeingahardhitter.JSisJohnStewart,JCisJimCramer,andthewordshenanigansisusedtodescribethemanipulation.Callitbyadifferentname,itsallthesamething!Thistranscriptwastakenfromwww.maholo.comandIwouldliketogivecredittoDarcyLoganfortheefforttowritethetranscript:JS:Howthehelldidweenduphere,Mr.Cramer?Whathappened?

JC:Idontknow.Idontknow.Bigfanoftheshow.Whosneversaidthat?

JS:Well,manypeople.Letmejustexplaintoyouveryquicklyonethingthatissomewhatmisinterpreted.Thiswasnotdirectedatyou,persay.Ijustwantyoutoknowthat.WethrewsomebananacreampiesatCNBC.Obviously,yougotsomeschmutzonyourjacketfromit.Tookexception.JC:Ithinkthateveryonecouldcomeundercriticismfromit.Imean,weallshouldhaveseenitmore.Imean,admittedlythisisaterribleone.Everyonegotitwrong.IgotalotofthingswrongbecauseIthinkitwaskindofoneinamillionshot.ButIdontthinkanyoneshouldbesparedinthisenvironment.JS:So,then,ifImay,whywereyoumadatus?--Audiencelaughs--

JC:No.JS:BecauseIwasundertheimpressionthatyouthoughtwewerebeingunfair.JC:No,youhavemyfriendJoeNasairandJoecalledmeandsaid,Jim,doIneedtoapologizetoyou?andIsaid,No.Werefairgame.Werebignetwork.Wevebeenoutfront.Wevemademistakes.Wehave17hoursofliveTVadaytodo.ButIJS:Maybeyoucouldcutdownonthat.--Audiencelaughs--SoletmetellyouwhyIthinkthishascausedsomeattention.ItsthegapbetweenwhatCNBCadvertisesitselfasandwhatitisandthehelpthatpeopleneedtodiscernthis.LetmeshowyouThisisthepromoforyourshow.

JC:Okay.--"InCramerWeTrustpromo--

JS:Isntthat,youknow,lookwearebothsnakeoilsalesmentoacertainextent--JC:Imnotdiscerning

JS:Butwedolabeltheshowassnakeoilhere. Isntthereaproblemwithsellingsnakeoilandlabelingitasvitamintonicandsayingthatitcuresimpetigoetc.etc.etc.Isntthatthedifficultyhere?JC:Ithinkthattherearetwokindsofpeople.Peoplecomeoutandmakegoodcallsandbadcallsthatarefinancialprofessionalsandtherearepeoplewhosaytheyonlymakegoodcallsandtheyareliars.Itryreallyhardtomakeas

manygoodcallsasIcan.


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JS:Ithinkthedifferenceisnotgoodcall/badcall.Thedifferenceisrealmarketandunrealmarket.Letmeshowyouthisisyouranahedgefund.JC:YesIdid.--December22,2006videoofJimCramer--

YouknowalotoftimeswhenIwasshortatmyhedgefundandIwaspositionshort,meaningIneededitdown,Iwouldcreatealevelofactivitybeforehandthatcoulddrivethefutures.Itdoesnttakemuchmoney.--End

Video--JS:Whatdoesthatmean?

JC:Okay,thiswasajustahyperbolicexampleofwhatpeopleYouhadagreatpieceaboutshortsellingearlier. JS:Yes,IwasJC:Ihavebeentryingtoreigninshortselling,tryingtoexposewhatreallyhappens.Thisiswhatgoeson,whatImtryingtosayis,IdidntdothisbutImtryingtoexplaintopeoplethisistheshenanigansthat

JS:Well,itsoundedasifyouweretalkingaboutthatyouhaddoneit. JC:ThenIwasinarticulatebecauseIdid--Ibarelytradedthefutures.Letmesaythis:Iamtryingtoexposethisstuff.ExactlywhatyouguysdoandIamtryingtogettheregulatorstolookatit.JS:Thatsveryinterestingbecause...roll2:10!--210video--(ThisispartoftheYouTubevideodiscussedearlier) JC:Iwouldencourageanyonewhoisinthehedgefundunittodoitbecauseitislegal.Itisaveryquickwaytomakemoneyandverysatisfying.Bytheway,nooneelseintheworldwouldeveradmitthatbutIdontcare.Otherguy:Thatsrightandyoucansaythathere.JC:MeansImnotgoingtosayitonTV.--Endvideo--

JC:ItsonTVnow.JS:IwanttheJimCrameronCNBCtoprotectmefromthatJimCramer.JC:IthinkthatwayyoudothatistoshowOkay,theregulatorswatchthetapetheyrealizetheshenanigansthatgoon,theycangoafterthis.Now,theydidcatchMadoff,thatsashame.JS:Nowwhywhenyoutalkabouttheregulators,whynotthefinancialnewsnetworks?Thatisthewholepointofthis?CNBCcouldbeanincrediblypowerfultoolofilluminationforpeoplethatbelievethattherearetwomarkets:Onethathasbeensoldtousaslongterm.Putyourmoneyin401Ks.Putyourmoneyinpensionsandjustleaveitthere.Dontworryaboutit.Itsalldoingfine.Then,theresthisothermarket;thisrealmarketthatisoccurringinthebackroom.Wheregiantpilesofmoneyaregoinginandoutandpeoplearetradingthemanditstransactionalanditsfast.Butitsdangerous,itsethicallydubiousandithurtsthelong-termmarket.Sowhatitfeelsliketous

andImtalkingpurelyasalaymanitfeelslikewearecapitalizingyouradventurebyourpensionandourhardearnedmoney.Andthatitisagamethatyouknow.Thatyouknowisgoingon.Butthatyougoontelevisionasafinancialnetworkandpretendisnthappening.JC:Okay.First,myfirstreactionisabsolutelywecoulddobetter.Absolutely,theresshenanigansandweshouldcall

themout.Everyoneshould.Ishoulddoabetterjobatit.Butmysecondthingis,Italkabouttheshortseverysinglenight.IgotpeopleinCongresswhoIvebeenworkingwithtryingtogettheuptickrule.Itsatechnicalthingbutitwouldcutdownalotofthegamesthatyouaretalkingabout.Imtrying.Imtrying.AmIsucceeding?Imtrying.JS:Butthegentlemanonthatvideoisasoberrationalindividual.AndthegentlemanonMadMoneyisthrowingplasticcowsthroughhislegsandshouting,Sell!Sell!Sell!andthencomingontwodayslaterandgoing,Iwas

wrong.Youshouldhaveboughtlike--Icantreconcilethebrillianceandknowledgethatyouhaveoftheintricaciesofthemarketwiththecrazybullsh**youdoeverynight.ThatsEnglish.Thatstreatingpeoplelikeadults.

JC:HowaboutifItryit?


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JS:Trywhat?JC:Trydoingthat.Illtrythat.JS:Thatwouldbegreat,butitsnotjustyou.Itslargerforcesatwork.Itisthisideathatthefinancialnewsnetworks

arenotjustguiltyofasinofomissionbutasinofcommission.Thattheyareinbedwiththem.JC:No,werenotinbedwiththem.Comeon.Idontthinkthatsfair.Honestly.IthinkthatwetrytoreportthenewsandIthinkthatpeopleJS:Acoupleofguysdo.ThisguyFaber-

JC:Hesfabulous,Faber.JS:AndmaybetwootherguysJC:Hesfabulousandhesdonesomethingsthathavereallyblownthecoveroffalotofstuff.

JS:Butthisthingwastenyearsinthemaking.JC:Right.JS:Anditsnotgoingtobefixedtomorrow.ButtheideathatyoucouldhaveontheguysfromBearSternsandMerrillLynch,andguysthathadleveraged35to1JC:Iknow.JS:Andthenblamemortgageholders.Imean-thatsinsane.JC:Ineverdidthat--Unintelligible--ImsorryYoureabsolutelyright.Ialwayswishthatpeoplewouldswear

themselvesinbeforetheycameontheshow.IvehadalotofCEOslietomeontheshow.Itsverypainful.Idonthavesubpoenapower.JS:ButdontYourepretendingthatyouareadew-eyedinnocent.Watch.Roll.Imean,ifImayJC:Itsyourshowforheavenssake. JS:Roll2:12.JC:No!Not2:12!--2:12PlaysYouTubeVideoOnNationalTV(ThisistheYouTubevideodiscussedabove,noteCramer

isnotverykeentohavethisshownonnationalTV!!).

JC:Youknow

JS:Igottatellyou.Iunderstandthatyouwanttomakefinanceentertaining,butitsnotaf***inggame.WhenIwatchthatIget,Icanttellyouhowangryitmakesmebecauseitsaystome,Youallknow.Youallknowwhatsgoingon.YoucandrawastraightlinefromthoseshenaniganstothestuffthatwasbeingpulledatBearandatAIGandallthisderivativemarketstuffthatisthisweirdWallStreetsidebet.

JC:ButJon,dontyouwantguyslikemethathavebeeninittoshowtheshenanigans?WhatelsecanIdo?Imean,lastnightsshow---JS:No,no,no,no,no. Iwantdesperatelyforthat,butIfeellikethatsnotwhatweregetting.WhatweregettingisListen,youknewwhatthebanksweredoingandyetweretoutingitformonthsandmonths.Theentirenetworkwasandsonowtopretendthatthiswassomesortofcrazy,once-in-a-lifetimetsunamithatnobodycouldhaveseen

comingisdisingenuousatbestandcriminalatworst.

JC:ButDickFogle,whoranLehmanBrothers,calledmeinwhenthestockwasat40becauseIthoughtthatthe


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stockwaswrong,Ithoughtthatitwasthewrongplaceforittobe.Hebringsmein,liestome,liestome,liestome.Iveknownhimfortwentyyears.JS:TheCEOofacompanyliedtoyou.JC:Shockerstocktrading.

JS:Butisntthatfinancialreporting?WhatdoyouthinkistheroleofCNBC?JC:Look,IhavecalledforstarchambersIwantkangaroocourtsfortheseguys.Ihavenotseenanyindictments.Wherearetheindictments?WherearetheindictmentsforAIG?ItoldtheJusticeDepartment,Heresthewayyougettheindictment.

JS:Itsveryeasytogetonthisafterthefact.Themeasureofthenetwork,andthemeasureofmess.CNBCcouldactasNooneisaskingthemtobearegulatoryagency,butcantbutwhosesidearetheyon?ItfeelsliketheyhavetoreconcileastheiraudiencetheWallStreettradersthataredoingthisforconstantprofitonaday-to-dayforshortterm.TheseguyscompanieswereonaShermansMarchthroughtheircompaniesfinancedbyour401ksandalltheincentivesoftheircompanieswereforshort-termprofit.Andtheyburnedthef***inghousedownwithour

moneyandwalkedawayrichashellandyouguysknewthatthatwasgoingon.

JC:Ihaveawall ofshame.WhydoIhavebananacreampies?BecauseIthrowthematCEOs.DoyouknowhowmanytimesIhavepantsedCEOsonmyshow?JS:Butthisisnt,asCarlySimonwouldsay,thissongaintaboutyou.JC:Okay.Allright.Youreright.Idontwanttopersonalizeit.Ithinkwehavereporterswhotryreallyhard.Werenotalwaystoldthetruth.Butmostimportantly,themarketwasgoingupforalongtimeandourrealsinIthinkwastobelievethatitwasgoingtocontinuetogoupalotinthefaceofwhatyoujustdescribed.Alotofborrowing.AlotofshenanigansandIknowIdid,I llbringitup,IdidntthinkBearSternswasgoingtoevaporateovernight.Ididnt.Iknewthepeoplewhoranit,Ialwaysthoughttheywerehonest.Thatwasmymistake.Ireallydid.Ithoughttheywerehonest.DidIgettakeninbecauseIknewthemfrombefore?Maybetosomedegree.

TheguywhocameonfromWachoviawasanoldfriendofminewhohelpedhireme.JS:Buthonestornot,inwhatworldisa35to1leveragepositionsane?JC:Theworldthatmadeyou30%yearafteryearafteryearbeginningfrom1999to2007anditbecameJS:Butisntthatpartoftheproblem?Sellingthisideathatyoudonthavetodoanything.Anytimeyousellpeopletheideathatsitbackandyoullget10to20percentonyourmoney,dontyoualwaysknowthatitsgoingtobealie?Whenarewegoingtorealizeinthiscountrythatourwealthiswork.ThatwereworkersandbysellingthisideathatofHeyman,Illteachyouhowtoberich.Howisthatanydifferentthananinfomercial?JC:Well,Ithinkthatyourgoalshouldalwaysbetotrytoexposethefactthatthereisnoeasymoney.IwishIhadfoundMadoff.

JS:ButthereareliterallyshowscalledFastMoney.JC:IthinkthatpeopleTheresamarketforitandyougiveittothem.

JS:Theresamarketforcocaineandhookers.WhatistheresponsibilityofthepeoplewhocoverWallStreet?Whoareyouresponsibleto?Thepeoplewiththe401ksandthepensionsandthegeneralpublicortheWallStreettradersandbythewaythiscastsanaspersiononallofWallStreetwhenIknowthatsunfairaswell.Themajorityofthoseguysareworkingtheira***soff.Theyrereallybrightguys.Iknowalotofthem.Theyrejusttryingtodotherightthingandtheyregettingf***edintheass,too.

JC:True.True.IthinkasanetworkweproducealotofinterviewswhereIthinkthatwehavebeentherehavebeenpeoplewhohavenottoldthetruth.Shouldwehavebeenconstantlypointingoutthemistakesthatweremade?

Absolutely.Itrulywishwehaddonemore.IthinkthatwehavebeenverytoughonthepreviousTreasurySecretary,


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verytoughonthepreviousadministrationhowtheydidntgetit,verytoughonBenBernanke.ButatthesametimeJS:Buthestheguywhowrotetherulethatallowedpeopletoover-leverage.JC:Itrashhimeverynight.IvecalledhimaliaronTV.WhatamIgoingtodo?Shouldweallcallhimliars?Ima

commentator.WehaveandyoucantakeissueswiththefactthatIthrowbullsandbearsandIcanstillbeconsideredserious.ImnotEricSevareid.ImnotEdwardR.Morrow.Imaguytryingtodoanentertainmentshowaboutbusinessforpeopletowatch.ButitsdifficulttohaveareportertosayIjustcamefromaninterviewwithHankWilsonandheliedhisdarnfoolheadoff.Itsdifficult.Ithinkitchallengestheboundaries.JS:Yeah.Imundertheassumption,andmaybethisispurelyridiculous,butImundertheassumptionthatyoudont

justtaketheirwordforitatfacevalue.Thatyouactuallythengoaroundandtryandfigureitout.So,again,younowhavebecomethefaceofthisandthatisincrediblyunfortunate.JC:IwishIhaddoneabetterjobtryingtofigureoutthe30to1andwhetheritwasgoingtoblowup.Itdid.OnceitdidIwaslateitsayingitwasbad.

JS:SomaybewecouldremovethefinancialexpertandtheInCramerweTrustandstartgettingbackto

fundamentalsonreportingaswellandIcangobacktomakingfartnoisesandfunnyfaces.JC:Ithinkwemakethatdealrighthere.--EndofInterview

OnNovember28th,2010onMSNBCsonlineU.S.Businessreport,IreadanarticleheadlinedEverydayInvestorsWonderifMarketisRigged.ThisreportwasthemostinterestingarticleIhaveeverseeninmainstreammedia.Itwentontosay,TheWallStreetinsidertradinginvestigationmayleadeverydayinvestorsalreadyrattledbyastockmarketmeltdown,a

onedayFlashCrash,andtheMadoffscandaltofinallyconcludethatthegameisrigged.VirtuallyeveryoneontheStreetbelievestherearesignificantimproprieties,andIthinkthereisanevenmoreimportantpointforthemassivenumberofinvestorswhoarenotWallStreetplayers,"saysformerNewYorkGovernorEliotSpitzer.HewasknownastheSheriffofWallStreetwhenheaggressivelyprosecutedwhite-collarcrimewhileStateAttorneyGeneral."Andthatisformostofus,youcan'tbeattheseguysattheirowngame.SomeprosonWallStreetsayhesitationbysmallinvestorsisgoodnews.Itmeansthatthere'splentyofdrypowdertopropelthemarkethigherinthenextfewmonthswhenandifthelittleguyfinallyrelentsandjoinsintherally.Therecordforhedgefundshasntbeensoimpressive,either.Since2008,whenthenumberofthosefundshit10,000,

nearly3,000havegoneoutofbusiness,accordingtoHedgeFundResearchinChicago.Theedgeishugelyexaggerated,saysRichardFerri,anadvocateoflow-costindexfundsandfounderoftheinvestmentadvisoryfirm,PortfolioSolutions,Ifthesmallinvestordoestherightthing,hecando99percentbetterthananyoneelse.ItotallyagreewithMr.Ferri.Ifthesmallinvestordoestherightthingthenthereisagoodchancethatheorshecanbesuccessful.Doingtherightthing,inmyopinion,startsbylearningwhatthegameis,andthenlearninghowtoreadSupplyandDemandimbalancesastheyappearonthecharts,alongwithfollowingafewsimplerules.


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Soaretheretailtradersandinvestorsfinallywakinguptothetruemechanicsofthemarkets?Andifso,cantheytakeadvantageofmarketmanipulation?Iwouldsaythatdependsontheindividual.Byreadingthisbook,youarealreadyonyourwaytorecognizinggreattradingandinvestingopportunities.Wedontreallyneedtobeconcernedaboutthewhys,what,ifs,andbutsofthemarket,butwedoneedtobethinkingandactinginharmonywiththeSmart

Money.Todosoinvolvesalittlebitofresearchandeffortonyourparttoact,think,andreactlikeapredator,nottheprey-andthatiswhatIamgoingtoteachyouinthisbook.ThereispublicmaterialreadilyavailableonthesubjectofMarketManipulation,soIwontdwellonthatsubjectanylonger.Themarketshavebeenthesameforhundredsyearsandtheyareveryunlikelytochangeinthefuture.Lotsofinformationandusefultipsareavailableatwww.marketmanipulation.com.ThissitecondensesmuchofthepublicinformationontheInternet.Ihighlysuggestyouvisitthesitewithanopenmindanddecideforyourself.Weallhavedifferentbeliefsystems,butIrecommendyouuseyourmindlikeaparachutewhichisbestusedwhenyouopenit!


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CHAPTER3

THESMARTMONEYANDTHENOT-SO-SMARTMONEY

InChapterTwo,weanalyzedthemechanicsofthefinancialmarkets,andnowwearegoingtolookatsomeofthecommonpitfallsexperiencedbymanytradersandinvestorsofdifferentskilllevelsthatcauselosses.Rememberthat3,000hedgefundswentoutofbusinessin2008-2009,soeventheBigPlayerscangetitwrong.However,whenyoucanreadtheimbalancesofSupplyandDemand-inanytimeframeormarketmoneycanbemadewhenthemarketismovingupordown,althoughitcanbealittlemoredifficulttoreadwhenthemarketmovessideways,asIwillshowyou.InTomWilliamstwobooks,TheUndeclaredSecretsThatDrivetheStockMarketandMaster

theMarkets,TomreferstotheNot-So-SmartMoneyasTheHerd.Nowletsexaminetheactualdefinitionofwhataherdisandhowthatcanbeappliedtothefinancialmarkets.Definition:herdnoun

Alargegroupofanimals,especiallyhoofedmammals. Derogatory:alargegroupofpeople,typicallywithasharedcharacteristicInterestingly,thedictionarytermshowsaherdofpeopleasderogatory,butinfact,asTomexplainedtome,humanbeingsoftenactasaherd.AgreatexamplethatIhaveobserved,not

onlyinChicagowhereIlive,butalsoallovertheworld,iswhenastorehasamarkdownsale.Asyoumayknow,BlackFridayintheUSAiswhenretailstoresofferthebiggestdiscountsonthefirstFridayafterThanksgiving.Hundreds,sometimesthousandsofpeoplewait,evencampoutfor2days,justforstorestoopenat5:00amorearlier.Peoplegothroughthistroublejusttogetabargain.Supposedlytheywanttofeelgoodaboutsavingmoneyandmakingagreatpurchase!Sowhathappenswhenthedoorsopenat5:00am?Mostoftenthannot,thecrowdstampedeslikeaherdtorushtotheitemstheywant,infearthatsomeoneelsemaytakethecherisheditemsandtherewillbenoneleft.Infact,in2008aWal-MartsecurityguardwaskilledinastampedeonBlackFridayinLongIslandNewYork.TheNewYorkTimesheadlineread,Wal-MartWorkerTrampledtoDeathbyFrenziedBlackFridayShoppers.Howdoesthisapplytotradingandinvesting?Simple-theveryemotionsexperiencedbythosewantingtogetthebargainpricesarethesameasthoseexperiencedbyalmosteveryhumanwhotradesthemarkets.However,thegroupwecalltheSmartMoneyareveryintelligentandfullyunderstandtheunderlyingreasonswhypeoplebuyandsellatcertaintimes,aswellaswhatmembersoftheHerdbasetheirdecisionson.Whilstprovidingeducationalseminarsandlivetradingeventsonmytravelsaroundtheworld,Ihavemetthousandsofretailtradersandinvestors.


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Ifindthatthereare5mainanalytictools(andIusethattermloosely)thatTheHerdusetotradeandmakeinvestments.Icanassureyouthattheseformsofanalysisarethereasonsofewretailtradersandinvestorsmakemoneyinthemarkets.Innoparticularorder: Technicalanalysisusingbacktestedpastpriceanalysisandformulas Recommendationsfromtelevision,newspapers,brokersetc. Fundamentalanalysisespeciallywhenexpertanalystssuggestaninstrumentwillmoveacertaindirection(wewillexaminethismorecloselyinamoment) BlackBoxsoftwaresystemsandtradingrobotsthatpromiseguaranteesofrichesbygivingbuyandsellsignals.Accordingtotheadvertisingandmarketingclaims,theyallegedlyproduceamazing

resultswithguaranteedpercentagereturns Tipsreceivedthroughemail,Facebook,Twitter,andothersocialmediasources.Unlessthesearefromaverytrustedandprovensource,beware!

TherearetwofactsthatIvelearnedearlyonasIbeganmyjourneyasaVSAexpert,which

haveservedmewellwheneverIanalyzethemarkets:(1) Thechartneverlies.(2) Thepastpricedoesnotmovethefutureprice.Inordertoprovethesetwofacts,wewillexaminethecrudeoilchartsof2008.Manyofyouwillrememberthatthegas/petrolpricesskyrocketedaroundtheworldandoilwassupposedlyinscarcesupply.Someoftheworldstopoilanalystswerepredictingapriceof$200abarrel.(Ironically,twoyearslater,theBPspillhappenedcausingmanyscientiststoexpresstheirconcernthatiftheoilwellwasntcapped,itwouldgushindefinitely!)

Nowletstakealookatwhatactuallyhappened.Youcanseeforyourselfjusthowinfluencedonebecomeswhenyouseeandhearinformationthatallpointsinonedirection.Inthiscase,oilwastogoto$200abarrel,andmanytraders,investors,andindeed,evenairlinesgotcaughtonthewrongsideoftheoilmarketbecausetheydidnotknowwhatthechartwastellingthem.Butasasoon-to-beVSAexpert,youwillknowbetterinthefuture!NewsArticle1:Story,L.(2008,May21).AnOracleofOilPredicts$200-a-BarrelCrude.NewYorkTimes.RetrievedMay1st,2011.Fromhttp://www.nytimes.com/2008/05/21/business/21oil.html

AnOracleofOilPredicts$200-a-barrelcrudeMay21st,2008(exactly3weeksbeforesupply/sellingcameinheavily,asweshallsee)TheChartNeverLiesTheWEEKLYOil

FuturesUsingTradeGuiderRTSoftwarewithVolumeSpreadAnalysisSignals


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CHARTVSA1

LookingattheweekendingJune13th,2008,wecanseethatunusuallyhighvolumeappearsontheChartVSA1andtherangeorspreadofthebaronthatweekisverynarrow.Onthe

dailychart(notshown),wehadasignalappearcalledTheEndofaRisingMarketintheTradeGuidersoftware.Combinedwiththesignalsthatappeared,thefollowingthreeweeksconvincedmethatthismarketwasbeingsoldonallthisbullishnews.IdecidedtopostmyanalysisonYouTubeandIwarnedoftheweaknessandimpendingfallofoil(thisisstillviewableonYouTube.Ialsowanttopointoutthatthiswaspostedinforesight,nothindsight).Ireceivedhundredsofabusiveemailsquestioningmyanalysis,andcriticizedfornotbeingafamousanalystaswellasdaringtoquestionthemainstreammediareports.IwasridiculedfrommanycirclesbutIhadfaithinmychartreadingskillsandwassubsequentlyvindicatedasoilpricesplummetedtoaround$34.00abarrel.

OnVSAChart1,examinethethreebarswiththeVolumeSpreadAnalysissignals(lookattheredtrianglesshownatthetoppointedoutbythreeredarrowsshown).Notethatasthemarketpricesarerising,thevolumeisfallingweekbyweek.Onlyonethingcancausethisfallinvolume,andthatisthelackofinterestinhigherpricesbytheSmartMoneyplayers.Theyhadalreadystartedsellinginthepriorweeks!Thelogicisthatiftheyarenotparticipating,wewillseeLowVolume,andintheTradeGuidersoftwarewerefertothisscenarioasNoDemandataMarketTop


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CHARTVSA2

AtbarsAandBonChartVSA2,wenowseethetrueconfirmationoftheweaknessthathasappearedinthebackground.(Bybackgroundwemeanthepreviousnumberofbarswhich

indicatethemarketpriceaction,whichwilleitherbebullishorbearish,whichwerefertoasweakorstrong).Duetotheobservedweakness,itsatthispointwewouldstarttoconsidershortingthemarket.Itsimperativetorememberthatwewanttoshortwhenthedowntrendisconfirmed-notbefore.TheTradeGuidersoftwarehasthreeverysimpletrendingsystemsthatshowthis(IwillexplainindetailinChapter11SomeBasicVolumeSpreadAnalysisTradeSetupsExplained).AsyoulookatChartVSA2,youcanseethesetrendingsystemswherethedowntrendisconfirmedbytheredbars,thereddiamonds,andthered,pink,andblackarrowsabovethebars(theseareproprietarytoolsincorporatedintheTradeGuidersoftware).Thisexampleis

theworkofprofessionaltrader,RobertHoffman.Thetoolsareavailableasanadd-onstudywithintheTradeGuiderportfolioofproducts.Ifyouhadbeenusinganytypeoftechnicalanalysisthatexaminedpastpriceinanattempttopredictthefuturepriceofthechartsshown,youmayaswellhaveacceptedthatoilwouldbegoingto$200abarrel.Pastpriceanalysistools,whichbytheirverynaturearelaggingnotleadingedgeindicators,(e.g.MACD,Stochastics,&RSI)weregivingmultiplebuyingsignalsat$147.00becausethepricewasrising.Wehadalsoexceededmanyofthestandardmovingaverageperiods(suchas20dayM/A),whichmadethetrendsbullish,andthenewsfromtheanalystsconfirmedeverythingyou

wereseeingonthetechnicalcharts.However,onceyouareabletocorrectlyreadandanalyzeSupplyandDemandfromthecharts,youcancombineVolumeSpreadAnalysiswithyour


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currenttechnicalandfundamentalanalysis.Bydoingso,youaregivingyourselfatradingedgewhichwillenableyoutomakeintelligent,informed,and(hopefully)profitabletradingdecisionsduetothefactthatitspossibletoobservetheintentoftheSmartMoney.ManyofourmostsuccessfulcustomershavecombinedVSAwiththeircurrenttradingstyleandmethodsofanalysis.However,wehavecometonoticethattherearemanywhohaveset

asidemuchofwhattheyhavepreviouslylearnedandbeguntofocussolelyontheVolumeSpreadAnalysismethodology.Itsimportanttoremember,thatwhentheSmartMoneyplayersstartselling,theywillsellaspricerises!Thisconfusesmanyuninformedtradersandinvestorsthathavebeenwaitingonthesidelines,hearingthegoodnews.Whattheydoisjumpontotherisingpricebandwagon(a.k.a.suckersrally)onlytogethammeredbytheeffectoftheSmartMoneyspriorsellingpositions,whichresultsinthepricedroppingoffthecliff.Thiscausesembarrassedbandwagonbuyerstoeithergetoutoftheirtradesatbreakeven,orsufferthepainoflossesasstopsarehit.ThisisknownasStopHunting.ThisphasebyitsnatureandintenteffectivelycreatesprofitsfortheSmartMoney,andmarksthepricebackdownandcreatesthescenarioformorebuying(iftheyarebullish)orheavyselling,asseeninthecrudeoilexamples,whichmarkthemarkettop.Remember,thatbyitsverynature,everybarcontainsacombinationofbuyingandselling,andthereforetheartofreadingthechartbecomesacombinationofindividualbarvolumeanalysis,aswellastheanalysisofthebackgroundbars,inordertocometotheconclusionastotheintentofthepartiesinvolvedincreatingthecurrentandbackgroundbars.Itsthisconcept,whichmanytradersfinddifficulttounderstand,butoncegrasped,yourrewardwillbethatthechartwillcomealiveinfrontofyoureyes!

Readingthisbook,absorbingitsknowledge,andexaminingvolumeverycloselybypayingattentiontoUltraHighandUltraLowVolume,youcanbecomeaSmartMoneytraderandinvestoryourself,andcanavoidthecostlypitfallsexperiencedbytheNot-So-SmartMoney.Dorememberthatchartreadingisaskillthatdevelopsovertime,muchlikelearningtoplaygolforamusicalinstrument.WhatIfoundhelpfulwastakingscreenshotsofanindividualstockorcommodity.WhenIsawnewsaboutthatparticularinstrument,Iwouldlookforunusualvolume.Iwouldwaitsixmonthsandrevisitthatchartandnewsstory,onlytobeamazed.Mostofthetime,theinstrumentdidtheveryoppositeofwhattechnicalanalysiswaspredictingandwhatthefundamentalanalysiswassuggesting.TheactionsoftheinstrumentindeedconfirmedmygutinstinctsandwhatIhadseenasaresultofcarefullystudyingtheprice(P),thespread(S),andthevolume(V)picture.Afterconsistentfindingswiththisexperiment,IknewIhadtowritethisbookandfollowinthefootstepsofmygreatmentors,RichardDemilleWyckoffandTomWilliams.Ihadtoattempttoeventheoddsfortheeverydaytraderandinvestorthatwantedtosucceedandmakeitinthemarkets.Youcanmakeitinthemarketsandbesuccessful,butyouwillneedtoembracetheparadigmshiftofVolumeSpreadAnalysis(VSA)inyourthinkingandtradingtoolset.Wecanprovideplentyoftoolsthatcanhelpyoumakethosenecessaryshiftsinyourbeliefsystem,butasI

statedbefore,thatisonlyifyouareopenmindedandlookattheevidence.Itsallrightinfrontofyoureyes;allyouneedtodoisreadthechart!


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CHAPTER4

BEWAREOFTHENEWS

InChapterThreewediscussedSmartMoneyandhowtheytakefulladvantageofunderstandingcrowdbehavior.Now,letslookattwocasestudies.Bothcasestudieswillbeexplainedinmoredetailslaterinthebook,butfornow,wewillfocusonsomeverysimpleprinciplesthateveryonecanunderstand.Ifyoudontreadthenewspaper,youareuninformed,ifyoudoreadthenewspaper,youare

misinformed.-MarkTwain

WhenIfirstmetTom,hedescribedanincidentinwhichthetradingsyndicateheworkedforwantedtoaccumulate,orbuymoresharesinaparticularstocktheyhadbeenfollowing.Inordertodoso,thesyndicateneededtocreatealevelofactivitybeforehandtoconveytheimpressionthestockhadproblems.(Nowwherehaveweheardthatbefore?SeeChapter1.)TomandsomemembersofthesyndicatehadbeenplantedintheAnnualGeneralMeetingofTeledyne,thecompanyinquestion.Therewereinquiriesthatgaveafalseimpressionthatthestockmightbeintrouble.Therumorsconcernedalostcontractthatneveractuallyexisted,butitwasenoughtostartthesnowballrolling.ThedayaftertheAGMthecirculatingnewswasnegativeandthesyndicatesoldjustenoughstocktocauseasellingpanic.Asthestockbegantofalltheyknewtheywouldbegettingabargain.Thestockwasnowatavery

attractiveprice,sotheybegantobuyatlowerprices,andthisiswhythefollowingtworulesareVERYimportantinyourlearning.RuleNumber1-WeaknessappearsonanUpBar

Inarisingmarket,oramarketwhichhasbrokenoutofasidewaysrange,whenweakness(sellingshortopportunity)appearsonthechart,itwillappearonanUpBar,i.e.apricebarthathasclosedhigherthanthepreviousbar,andwillbeonunusuallyhighvolumebysuchcomparison.TradeGuiderwillindicatethisasUltraHighVolume.Iftheoppositeoccurs,namelyunusuallylowvolume,TradeGuiderwillshowitasUltraLowVolume.(Thespreadcouldbetelltalenarrowerthanpreviousbars)AtfirstglancethatmayappearasthoughIamcontradictingmyselfbystatingthatweaknesswillappearonhigh(orpreferably,UltraHigh)volume,andthenalsoonlow(orUltraLow)volumeonupbars.Thestatementisfactuallycorrect!So,whyisthis?Theanswerissimple:WhentheSmartMoneyplayersbegintodumptheirholdingsofwhateverinstrumentisbeingtraded(stocks,futures,FOREX,commoditiesetc.),theirSELLordersareallcominginoneafteranother,andthatcreatestheUltraHighVolume.ThisiswhatiscalledtheDistributionphase,indicatedbythemnemonic,Supply-Overcoming-Demand.

Ananalogyofthisisintheretailenvironmentwheremanufacturerswhohavegoodstosell,supplythemtoretaildistributor.


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WhatshappeningisthatSellersareovercomingbuyersatacertainpricelevelorrange(thisisoftenseenatpreviousresistancelevels).Nowafterthisactivityhastakenplace,themarketwilloftenmovesidewaysandnotsuddenlycollapsebecausetheSmartMoneyneedtoensurealltheirsellordersarebeingsatisfied.Thisexplainswhythedistributionphasecan

taketime.AnotherindicationofthislackofinterestonthepartoftheSmartMoneyisthatitcausesthepricetopeakandrolloverinacharacteristicmushroomshape,whichiseasytospot.SmartMoneyensuresthatthepriceisheldatacertainlevelbybuyingsomeofitbacktotrapandencouragetheuninformedtraders/investors,ortheHerdtoenterintoorremaininlongtrades.Theywilloftenbeluredintothis,afterseeingthefrenzyofwhattheythinkisbuying.Theyassumethisisthecaseduetothehighvolumeandrisingprices,butitstheexactoppositeofwhatisactuallyhappening!IwillprovethistoyouinChartVSA1.Thetimetoshortthemarketiswhenpricestartsconfirmingthelackofbuyinginterestandbeginstorolloverandtrenddown.(Iwillshowspecificsetupslaterthatwillamplifythisprincipleingreaterdetail.)

CHARTVSA3

LookingatChartVSA3,noticethatinthetrendweseeanunfoldingpatternwithupbar(s)(pricebar(s)thatclosehigherthanthepreviousbar(s),withthevolumeontheupbar(s)extremelylow,oratleast,lowerthantheprevioustwobar(s).

Asmentioned,noticebylookingatthechartthatasthetrendpatternshowspriceprogressingupwards,SmartMoneyhavewithdrawntheirinterestbecausetheyhavealreadysoldand


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madeaniceprofit.Thisconfirmsthattheyhavenointentionofbuyingsincepriorbarsconfirmmarketweakness.Thiscontradictsthestrength,whichthenewsmediawillbereporting.BykindcourtesyofTradeGuiderSystemsInternational,letslookcloseratChartVSA3,which

showsastrongVolumeSpreadAnalysisprinciplethatIwillexplainindetailabitlater.IwillalsoshowhowthenewswillbeinfluencingtheHerdthatwediscussedinchapter3togolong,wheninfacttheyshouldbepreparingtogoshort(sell)whenthesetupappears.Assureasdayfollowsnightthetradingsignsintheskyarethere,ifyouknowwhattolookfor!ChartVSA3isadailychartofU.S.stock,JPMorganChase,withanindicatorsignalthatappearsintheTradeGuidersoftwareprogramcalledEndofaRisingMarket.Notethatthedateofthesignalis14thofOctober2009,whichisverysignificant,asweshallsee.ThisstockhadbeeninastrongbullrunsinceearlyMarch2009.InfactonMarch6th2009,thestockwasheavilyaccumulated,(bought)atthelowof$15.52,whichwasthestartoftheuptrend.Onthe14thofOctober,thestockgapsuponUltraHighVolume,verynarrowspreadbar.(Therangeinthiscaseisthepricedifferentialbetweenthetopandbottomofthebar,whichwesaidinChartVSA1,isthedailybar.Pricecanalsorangeorchanneloveranumberofbarsaswewillseelater)Now,notethatwhatIamgoingtoshowyouworksjustaseffectivelyonaoneminutetimeframeasitdoesondaily,weeklyormonthlytimeframes.OnChartVSA3,viz.October14th,2009,thisstockisgettingheavilydistributed(sold)bytheSmartMoney,whowillhaveboughtthisstockatmuchlowerprices.Remember,theendgameisPROFIT!LookingattheOctober14thbar,wemakethefollowingobservations:Thestockhasgappedup,whichisunusualactivityinitsownright,andclosesatanewhighof$46.90.Wehavenow

madenewhighswithnopriceactioninthepastatthislevelforatleast500bars.WecallthisFreshNewGround.Takenoteofthefollowing: Increasedmassivevolumeoverpreviousbars Therangeofthebarisnarrow,notwide(infactthehighofthedailybaron14thOctober2009isat$47.20,thelowis$46.37),

Theclosingprice-itsclosetothemiddleat$46.90.

IfallthatvolumewasSmartMoneybuyingatthislevel,youwouldexpectawiderspread(range)onthebarandacloseupornearthehighofthebar(s),butthisisnotwhatweareseeing.WhatweareactuallyseeingisTheEndofaRisingMarketandthereisaspecificwaytotradethis.Ifwelookcloselyatthesimplelogicofwhatishappeningonthisbar,thenwemustsurelyconclude: (V)SmartMoneyplayersclearlyappearactiveasseeninthemassivevolumeshownatthebottomofthechart,representedbythegreenbar.(Thereisnosignificancetothecolorofthebarforthepurposesofthisexplanationsoyoucanignorethefactitsgreen,inspiteofthecoloringbeinga

proprietaryelementoftheTradeGuidersoftwareprogram).


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(S)Thespreadofthebarisextremelynarrowandthevolumeishigh.Mostlikely,andmoreoftenthannot,theHerdwillberushinginandbuying.TheSmartMoneywillsatisfyeverybuyorderwithasellorderandsaythanksverymuchyoumugsastheytakeinmoreprofithavingboughtmuchlower! (P)Theclosingpriceisveryimportanthere,too.Itclosesnearthemiddleofthebaronthatnarrowrange.So,wehaveanUltraHighvolume,narrowspreadbarclosinginthemiddle,andweareintofreshhighground.WhatcouldbecausingthisUltraHighvolume?Well,bothbuyersandsellersareinteractingatthislevel,andthebuyersareTheHerd,ortheNot-So-SmartMoneyandthesellersaretheSmartMoney.TheSmartMoneypeoplehavenowmadeatidyprofitandunloadedtheirpositions.Theymadethisstockaweakstockwiththistacticandtheyknowit.WhyOctober14th?Whynotdothesellingaweekbeforeoreventwoweeksbefore?Surelytheywouldstillhavemadeaniceprofit.TimingiseverythingandtheSmartMoneyplayers

knowthis.Plus,theyhaveinformationthattheretailtradersandinvestorsdonothave.LookatthenewsaboutthisstockonOctober14thforaclue.Weseeinthenewsarticle2belowthatthereisaveryBULLISHearningsreport.NewsArticle2:Ellis,D.(2009,October14).JPMorganScoresBiginLatestQuarter.CNNMoney.com.RetrievedMay1st,2011.Fromhttp://money.cnn.com/2009/10/14/news/companies/jpmorgan_chase/index.htm

JPMorganscoresbiginlatestquarteristheheadline.ThewordsstrongestperformanceandtoweredaboveWallStreetsexpectationsareuseddirectlybelowtheheadline.Allthenewsisnowbullish.Thestockhasbeengoingupandupbecauseitsinanuptrend.All

technicallaggingindicatoranalysistoolswillbefiringoffbuysignalsbecausetheytrackpastpricetopredictfutureprice(andthisexampleshowswhythatsimplydoesntwork,becausethepastpricedoesntpredictamoveofthepriceinfuture,anditneverwill!)ItwouldappeartotheNot-So-Smartmoneythatthisisagreatopportunitytobuythisstockbecauseeverythingtheyhavelearnedappearstolineup: Thefundamentalslookgreat!-Tickthebox Thestockisanuptrend,soifIgolongandBUY,Iamtradingwiththetrend!-Tickthebox Themovingaverage,stochastic,MACD&RSIallgiveBUYsignals.-Tickthebox IfIdontgointothemarketandBUYnowIwillmissthemove!-TicktheboxOK,fine.BUY,BUY,BUY,butasyoudothat,theSmartMoneywillSELL,SELL,SELL.


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Nowthestockwillplummet,aswecanseeinChartVSA3.TheNot-So-SmartMoney,whohavenowlosttheirmoney,ruetheday,scratchtheirheads,throwtheircomputeratthewall,andtrytofigureoutwhatthehelljusthappened.

However,whenyoucanreadVolume,SupplyandDemand,andtheimbalancescausedbyUltraHighandUltraLowVolume,youwillbecomeaSmartMoneytraderforyourselfandwillbeabletostudythechartslikeaprofessional.YouwilltradeandinvestwithnewlyfoundconfidenceandvigorbecauseyoucanclearlyseewhatthetrueintentionsoftheSmartMoneyareandbeablewilltotradeinharmonywiththem,notagainstthem.Now,couldhistoryrepeatitselfandwouldtheSmartMoneyknowthattheNot-SoSmartMoneywouldfallforexactlythesamesetupexactlysixmonthslater?Similarnewsreport,almostidenticalpricelevel(whichwasactingasresistance)andthesameresult,thestockplummets,asyoucanseeinChartVSA4.

CHARTVSA4


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ThehighonApril14th,2010was$47.93andthehighonOctober14th,2009was$47.20.ThelowonApril14th,2010was$46.78,andthelowonOcotber14th,2009was$46.37.ThecloseonApril14th,2010was$47.73andthecloseonOctober14th2009was$46.90.Isthisisa

coincidencethatthisstockdidthisexactlysixmonthsafterthepreviousselloff?Well,youmakeupyourmind,butyoucannotfailtoseethatexcessivevolumeonupbars,especiallyatpreviousresistance.Plus,whenthenewsisgoodandencouragingyoutogolong,itsasuresignforyoutostartlookingforashort.Nowyouhaveknowledgethathundredsofthousandsoftradersandinvestorsaroundtheworlddonotknowandmayneverknow,unlessofcoursetheyfindthisbookoritfindsthem!!(Pleasevisitwww.tradingintheshadow.comtoseeavideoshowingthesamesetuphappeningagaininApril2011.)

RuleNumber2-StrengthAppearsOnADownBar

Whenstrength(opportunitytobuy)appearsonachart,itwillappearonadownbar,whichisapricebarthathasclosedlowerthanthebar(s)behindit,andwillbeonunusuallyhighvolume(UltraHigh)orunusuallylowvolume(UltraLow).AswesawinRulenumber1,atfirstglancethatmayappearasthoughIamcontradictingmyselfbystatingthatstrengthwillappearondown(orpreferably,UltraHigh)volume,andthenalsoonlow(orUltraLow)volume(down)bars.Thisstatementisalsofactuallycorrect!So,onceagain,whyisthis?

WhentheSmartMoneyprofessionalsbeginbuyingwhateverinstrumentisbeingtraded(stocks,futures,FOREX,commoditiesetc.)theirbuyordersareallcominginoneafteranother


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andthatcreatestheUltraHighVolume.ThisiswhatwecalltheAccumulationphase,orDemandOvercomingSupply.Putsimply,buyersareovercomingsellersatacertainpricelevel(thisisoftenseenatprevioussupportlevels).Afterthishastakenplace,themarketwilloftenmovesidewaysand

notsuddenlyrallyimmediately.ThisisbecausetheSmartMoneyneedtoensurealltheirbuyordersarebeingsatisfiedandtheyhaveexhaustedallthesellers(Supply).Thisisthereasonwhytheaccumulationphasecantaketime.Theyensurethatthepriceisheldatacertainlevelbysellingbackorderstoencouragetheuninformedtraders/investorstogetshortwhichtheyoftenwillwhentheyhaveseenthefrenzyofwhattheythinkisselling.Thishappensbecausethepricefalls,andthevolumeisveryhighandtheyincorrectlyassumethatthehighvolumeMUSTbeselling.

TimeToBuyTheMarket

Thetimetobuythemarketiswhenwebegintotrendup.(Iwillbeshowingspecificsetupslaterthatexplainsthisprincipleinmoredetail)Asthetrendbegins,weseeadownbar(apricebarthathasclosedlowerthanthepreviousbar)andthistimethevolumeonthedownbarisextremelylow,oratleastlowerthantheprevioustwobars.ThistellsusthatthereisnosellingpressureornoSupply,(i.e.nomoresellers)anobviousconclusionthatthemarketisgoingtorally.Awordofadvicehere,eventhoughitspossibletoidentifymarkettopsandbottoms,donttryandtradethem,becausetherearemuchlowerriskentriesthattakealittlemoretimetodevelop,soyouhavetobepatient!

AgoodexampleistheU.S.stock,BritishPetroleum(BP).Ipickedthisexampleforanumberreasons.TomWilliamssignalcalledPotentialClimacticAction(SignofStrength33)isoneofthestrongestindicationsthatSmartMoneyarebuying.ThissignalcameupinTradeGuideronJune9th,2010.Tomcalledmeandsaid,Gav,IamwatchingthenewsandthisishorrificArewesurethatthevolumeiscorrect?ItlooksverymuchtomelikethebigplayersarepilinginandbuyingBPstock,theymustknowsomethingwedont-doyouthinktheyhavealreadycappedthewellandarenottellingus!!Ihadnoideawhatwasgoingon,butIcouldreadthechartIwasduetospeakattheMassachusettsInstituteofTechnology(MIT)inBostonafewweeksafterthissignalhadappeared,andIwasabletousethisasaliveexample.Ihadsomethingtoshowtheminforesightandnotinhindsight.WhenIcommencedwritingthisbookinJanuary2011,thecurrentnewsthenonBPwasthattheirsharepricehadincreased,andatthetimeofwriting,BPsstockpriceintheUSisupfromtheJune25th2010lowof$26.83toahighasofJanuary6th2011of$46.60.BPsstockpricehasnearlydoubledinvaluein6months!Duringthatinterimperiod,thenewswassobadthatwhenIspokeatMITtoTheBostonTradersGroup,(greatpeopleandgreatseafood!)theyaskedmewhichstockwasagoodbuyatthetime.WhenIsaidBPtheyalllaughed,probablythinkingitwasmyBritishsenseofhumor,butnooneslaughingnow!That

wasabigopportunitytomakemoneyalongsidetheSmartMoney.


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Youmaybesayingtoyourself,WellyesGavin,italllooksgoodinhindsight,butwhataboutinforesight?Thatsthewonderfulthingaboutwww.youtube.com,becauseIamabletopostmyanalysisasithappensanditsalsodatestamped.Whenyougetaminute,takealookatTradeGuiderschannelonwww.youtube.comandjusttypeinTradeGuider.SeewhatIsaidwhentheoilmarketwassupposedtohit$200abarrelin2008,onlytogetto

$147.27andthenplummetto$33.20injust6months?Bewareofthenews,becausealltheanalysts,includingwellrespectedoilanalyst,ArjunMurtiofGoldmanSachs,hadbarelytwomonthspriortothedecline,warnedofanimpendingoilspiketo$200abarrel!Iwonderwhoprofitedastheoilmarketplummeted,nottheairlines,thatsforsure,becausetheywereexpectinghigherpricesandthereforehedgingaccordingly!TheChartNEVERLIES,asweshallnowseeontheBPcharts.

CHARTVSA5


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CHARTVSA6

IfwelookcloselyatChartVSA5andChartVSA6(BPDailychart),theTradeGuiderproprietarysignalSignofStrength33isapowerfulindicatorbecausewhenitappears,itsa

clearmessagefromtheSmartMoneyannouncingthattheyarebuyingeverythingfromthepanickingHerdorNot-So-SmartMoney.Wewilldiscusstheactualplaceofwhentotakealongtradelater,butevenwhenIseethissignal,Iwait.IdonotwanttobetoohastysincethereisstillSupply(selling)containedinthatbaronJune9th,2010andthatcandrivethepricelower.ThebarthatformedonJune25th,2010isextremelysignificantandformspart2ofathree-parttradesetup.


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CHARTVSA7

NowletsexamineChartVSA7thatbarwhichhadformedonJune25th,2010.

Firstly,wenoticethattheVolumeismuchlessthanwesawonthe9thand10thofJune2010.Thatissignificantbecauseitisshowingthesellingpressureisgettinglessandless.ThisiswhytheSupply(selling)isovercomebytheDemand(buying)fromtheSmartMoney.Whatsmoreimportant,however,aretheextremelynarrowindividualbarpricespreadsonthe25thand26thofJune2010.IfweweretoturntheJPMorganchartinChartVSA3upsidedown,itwouldlooksimilartowhatyouseeinghere.OntheJPMorganchartweobservedSupplyovercomingDemand(sellingswampingthebuying)andontheBPchartweseetheopposite,DemandovercomingSupply(buyingswampingtheselling).Thiscanonlymeanoneoutcome-thehigherpricesas

weseeinChartVSA6,becauseallchartsandallmarketsworkthesameway,includingstocks,commodities,futures,currenciesandyes,evenspotFOREX(butthatsanothersubjectforanotherbook!).


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CHARTVSA8

Wethensee,inChartVSA8,theresultoftheAccumulation,namelythatDemandhasovercomeSupply,andhigherpricesbecomeinevitable.Allthewaythroughouttheupmove,

SmartMoneysellsomebacktobringthepricedownagaintotestforSupply(i.e.theywanttoflushoutanyremainingSupplyinordertomovethepriceupwithouthavingtoabsorbSupplythatremains).Ifthetestissuccessful,wecanexpecthigherprices,especiallyifthetestisonlowvolumeandnarrowspreaddownbarintothesameareawhereyoufirstsawtheveryhighvolume.ThisisastrongBUYsignal.However,thenewsthatyouhearwillalmostalwaysbeextremelybearish,negative,andfearmongering,whichhastheeffectofblockingyourentryintothemarketatthecorrecttime.

TomWilliamstaughtmetotrustinthechartandnothingelse.Healsotoldmethatifhehadhisway,hewouldlockeveryretailinvestorandtraderinadarkroom-noTV,nonewspaper,nooutsideinformation,orinfluencesandjustgetthemtotradetheVSAprinciplesastheyappear.AsTomsays,IfyoucanreadthechartandignoreyournaturalhumaninstincttofollowtheHerd,youcanmakealotofmoneyinthemarkets.


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CHARTVSA9

Alwayslookbackonpreviouspriceactionasfarasyoucan,inordertoseeifthereareanyunusualVolumeareasaroundSupportandResistancelevelsinthebackground.InChartVSA

9,Ilookedback10yearsonthemonthlyBPchart.Stocksmoveincycles-10yearsisacycle,and,asifbymagicthereitwas:clearsupportaroundthe$27.00to$30.00area,exactlywheresupportwasfoundduringtheGulfOfMexicooilwelldisaster.Dontforget:Bewareofthenews!Itisnotnecessarilythatthemediaarelying;theyaresimplyreportingwhattheyhearandsee.Although,IhaveyettohearanexplanationastohowBPssharesnearlydoubledduringtheworstoilspillcrisisAmericahaseverseen,notablywhenrumorswereaboundthatBPwouldgooutofbusinessandthatLibyawouldtakethemover!Remember,itsvitaltohaveacontrarianmindsetifyouwanttomakemoneyinthefinancial

markets,eventhoughitgoesagainstyournaturalinstincts!Infact,ifyourdecisionisagainstyournaturalinstinctsyouwillprobablymakeaverygoodtradingorinvestmentdecision!Finally,justtohammerhomethepoint:Rememberthefinancialcrisisof2008whenLehmanBrotherswentoutofbusinessinlateSeptember.Also,duringDecember2008andJanuary2009,thebankingsector(weweretold)wasinshamblesandtheGovernment(asitwasreported)wasgoingtohavetotakeoverGoldmanSachs(althoughnowIthinkitsprobablytheotherwayround!)


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CHARTVSA10

Well,letslookattheWeeklychart,ChartVSA10,andexaminetheVolumeandwhatactuallyhappenedtotheGoldmanSachsshareprice.LetsseeiftheSmartMoneysentusatelegram

thenastheydidwithBritishPetroleum(BP).WecanseethatjustlikeBP,theAccumulationtookplaceonbadnews.AftertestingforSupplyinDecember2008andJanuary2009,thestocktookoffbecauseDemandhadovercomeSupply.IfyouhadswitchedonyourTVorreadthenewspapersduringDecember2008andJanuary2009,youwouldhavebeenforgivenforthinkingthatthebankswerefinishedandtheTARPmoneymeantthegovernmentwouldbeincontrolmakingthebankssharesworthless.

Ofcoursethatneverhappened,andsomeofthebiggestbonuseseverpaidweregivenouttothebankersin2010,onlytwoyearsafterthecrisisbegan.Inthe1960s,RichardNeysnumberplateofhisRollsRoycereadWakeUp,andifyoutakeonboardhissubliminalmessage,youwillnotfailtomakemoneyinthefinancialmarkets.Nowletslookbrieflyattheinspirationforthisbookandtheteachersthathadanimpactintheirtimeinhelpingotherstounderstandthegame:


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RichardDemilleWyckoff(November2,1873March19,1934)wasastockmarketauthority,founder

andonetimeeditoroftheMagazineofWallStreet(foundedin1907),andeditorofStockMarketTechnique.www.richardwyckoff.org

"...Thousandsofthosewhooperateinthemarketsnowrecognizethefactthatthemarketmomentarilyindicatesitsownimmediatefuture,andthattheseindicationsareaccuratelyrecordedinthemarkettransactionssecondbysecond,andthereforethosewhocaninterpretwhattransactionstakeplace

secondbysecondormomentbymomenthaveadistinctadvantageoverthegeneraltradingpublic...."

-RichardDWyckoff,1914

"Tapereadingseemstous:TheSCIENCEofDETERMININGfromtheTAPEtheimmediatetrendofprices."

"ItisaMETHODofFORECASTING,fromwhatappearsonthetapeNOW',whatislikelytoappearinthefuture."

-RichardD.WyckoffStudiesInTapeReading

RolloTape

RichardNeysRollsRoyceExaminethenumberplateclosely,itsaysitall!


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RichardNeyActor,Author,Investor,andEducator(November12,1915July18,2004)

TomWilliamsisaformerprofessionalsyndicatetraderandinventorofthemethodologycalledVolumeSpreadAnalysisthattracksmarketmanipulationasithappensonachart.Now82,Tomhaswritten2booksandstilltradestodaywhenthisbookwaswritteninearly2011.


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TomWilliams,October2010Statements:Themarketisdeviousandmanytimesyouwillbuyongoodnewsonlytolosemoneyandsellonbadnewsonlytoseethepricerisesoonafterwards,andthatisbecauseSmartMoneyunderstandcrowdbehaviorandtakefulladvantageofTheHerd!!

Themarketworksbecausehumanbeingshavetwopowerfulemotionsthattheyhavedifficultycontrolling,namelyFEARANDGREEDThemarkethastobefedlosers.Itisdeviousandwhatyouhearwilloftennotbethetruth.Ihaveneverheardthetruthaboutthestockmarketoranymarketontelevision.JustlookatthenewsabouttheOilmarketinMay2008.Greedatthetopasmanytraderspiledinbecausetheyweretoldoilhadtogoto$200abarrel!!Thechartneverlies,andGavinwentonYouTubetoshowtheTradeGuiderproprietarysignal,namelyTheEndofaRisingMarket.Thenlookatthebankingsectorin2008duringSeptember.FearsetinandprofessionalmoneybegantoBUYnotSELLandthatcausedstockslikeGoldmanSachstoRally400%.ItwasallinthechartifyouknowhowtoanalyzeSUPPLYANDDEMAND.

ENDOFEXCERPTOF

TRADINGINTHESHADOWOFTHESMARTMONEY


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THEVOLUMESPREADANALYSIS

(VSA)SEQUENTIALTRADESET-UP

Volume Spread Analysis, or VSA as I shall now refer to it, was developed to analyzeimbalancesofsupplyanddemandinanymarketandinanytimeframe,however,whatmany

tradersandinvestorsseemtomissisthattheVSAmethodologydoesnotjustanalyzeonepricebarattherightedgeofthechartbutactuallyanalyzespricebarsinpriorsequences.Since Tom Williams developed the system over twenty years ago, many very cleverindividuals have attempted to program in their own version of VSA. I have downloadedseveral so-calledVSAprogramsthathavemadeclaimstobeingthesameasTomsoriginalwork,andyoucanbetthattheyaresoinaccurateandincorrectlyprogrammedthattheyshowthetrueVSAmethodinapoorlight.ThegeniusofTomWilliamsapproachtoprogramming VSAcorrectlywasthatheknewwhento put inrestrictions so that youdo notgetsignals appearingon every bar. It is abit likedevelopingacomputerprogramtoplantheperfectgardenparty.Theprogramwouldneedtoaskquestionsofthepersoninputtingtheinformationtogivethecorrectoutput,suchas:1.Howmanypeopleattendingtheparty?2. Istheweatherforecastgoodorbad?3. Aretherevegetariansthatrequireaspecialmenu?The wonderful thing about the TradeGuider system is that Tom Williams, through hisextensiveexperienceasaformersyndicatetraderusingtheWyckoffmethod,hasansweredall the questions for us. Henceweget signals in the TradeGuider softwareand the add-in

studiesforTradeStation, eSignal,Metatrader4andotherpackagesthatare currently inthedevelopmentstagewithourcompany.AlthoughVSAproducesasignalonanindividualbar,therearesequencesofsignalsthatgiveamuchhigherprobabilityofamarketturnoratrendchange.Ifapplicablerulesarefollowed,asexplainedinmybookTradingintheShadowoftheSmartMoney,whatfollowsisthatyouwilltradeinharmonywiththebigplayerswhoaremovingthemarket,andnotagainstthem.LetmegiveyouanexampleofasequencethatrecentlyappearedintheSilvermarketthatwaspickedupbythescannerintheendofdayversionofTradeGuideronthe25thofApril,a

weekBEFOREthe27%collapseinthesilver(commodity)market.Notethatthescannerpicksupaclusterofredindicators,whichisextremelysignificant.Whenaccumulationordistributionoccurs,ittakessometimeforSmartMoneytocompletetheprocess,whichiswhythesequencesIamgoingtosharewithyouappearwithin20-25barsofthemarketturn.Itsthedreamofeverytraderandinvestor,toknowinadvancewhenamarkettoporbottomisbeingformed.Thissummarybookwillpresentyouwiththesignalsequencesthatmarkthetopandbottomofamarket.


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ThisistheTradeGuiderchartofsilvershowingthescannerthatpickedupseveralSignsofWeakness(SOW)duringlateApril2011.ThiswasshowingSmartMoneydistributionattheendofAprilTheresultwasa27%fallinsilverpricesinearlyMay2011.SowhatwasthesequentialVSAsetup?Letshavealook

ThischartiscourtesyofTradeGuiderSystemsTradeGuiderEODchartofdailysilvercontract.

ThesequenceatA,B,andCmarksamarkettop.TheVSAindicatornumbersareasfollows(in

thissummarybookyouwillfindanexplanationforeachindicatorthatcanbefoundintheTradeGuidersoftwareandVSAadd-instudies):


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PointASOW1TheBuyingClimax(Startofdistribution) PointBSOW104SupplyComingIn(alsohastheappearanceofanUpthrust) PointCSOW199NoDemand(NoDemandatmarkettop)

VSAsequenceisSOW1followedbySOW104andSOW199.ItisconfirmedatpointD,whichcloseslowerthanpointC.NotewhenyouseeaNoDemandbarDONOTshortatmarket,placeasellorderafewticksbelowtheNoDemandbar.NoDemandneedsconfirmationfromthenextbar,whichshouldcloseormovelowerthanthepreviousbar.

ChartcourtesyofInfinityATchartssilverSIN1intradaychartshowingsignsofweaknesssequence2.

You may ask, why I would be revealing this powerful information to the general tradingpublic?WhyshouldInotjustkeepittomyselfandtradethesequences?Theshortansweristhat,asacompany,wearegoingtodopreciselythat,namelytoestablishanequityfundandautotradethesystem.Ihave ateam inplacetodo that,butas Iexplainedinmybook,Imade apromise toTomWilliamsin2002thatIwouldnotbeselfseekingwiththeinformationthatheimpartedtomeandwouldthereforealwaysremaincommittedtosharewillinglytheknowledgeIhavegainedonthisimportantsubject.


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By doing so, I have had the good fortune to make new friends, meet some of the mostinterestingpeopleintheworld,andhavefoundmyselfblessedwiththeabilitytohelpothers,whichisthemostrewardingthinganyhumanbeingcando.

PleasecontactDarrenformoredetailedinformationaboutthe

TradeGuiderVSAsystemandtoarrangea45-minute,no

obligationconsultation.YoucanemailDarrenHolmesatdarrenh@tradeguider.com,

oryoucancallhimdirectlyat312-433-9334.

Welookforwardtoteachingyouhowtotradein

harmonywiththeSmartMoney


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SHORTTRADESETUPS:SOW-SIGNSOFWEAKNESS

Sequence1(exampleshowninsilver)

SOW1 TheBuyingClimax(Startofdistribution)pg.83SOW104 SupplyComingIn(alsohastheappearanceofanUpthrust)pg.58

SOW199 NoDemand(NoDemandatmarkettop)pg.66

Sequence2(examplesilverintradayInfinityATchart)

SOW26 SupplyComingInpg.27SOW7 SupplyComingInpg.60SOW146 NoDemandpg.65Sequence3

SOW90 PossibleHiddenSellingpg.88SOW26 SupplyComingInpg.57

SOW198 NoDemandpg.66Sequence4

SOW134 NoDemandpg.65SOW10 Upthrustpg.70SOW134 NoDemandpg.65Sequence5

SOW5 EndofaRisingMarketpg.75SOW2 Upthrustpg.74SOW6 NoDemandpg.65

Sequence6

SOW89 PotentialClimacticActionpg.89SOW86 FailedTestpg.79SOW96 UpthrustAfterWeaknesspg.86

Sequence7SOW97 ReversalAfterEffortToRisepg.80SOW10 Upthrustpg.70SOW106 NoDemandpg.65

Sequence8SOW108 TopReversalpg.81SOW10 Upthrustpg.70SOW193 NoDemandpg.65

Sequence9SOW159 SupplyOvercomingDemandpg.84SOW101 Upthrustpg.74SOW127 Nodemandpg.65


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Sequence10

SOW21 EndofaRisingMarketpg.75SOW28 NoDemandpg.65SOW34 NoDemandpg.65

vsa-tradeseqexp

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