you have to use guerrilla tactics. You must be nimbleand quick. You must learn to take profits when they exist. Youmust learn to use strategy when you trade. .
329
Any intraday chart will show you the way markets areChapter 22A Word to the Wise
_The following paragraphs are presented in the hope that | canconvince you to be realistic about your trading.
Far too many traders are undercapitalized. | have had themcome to my seminars, recently out of work, with $5,000 or lesstrading capital, hoping for a acle. If this fits you, you will not betrading, you will be gambling. No matter how determined you are todo well, it will take a small miracle for you to be successful. Theodds are heavily against you.
 
All too often traders tell me they can't afford to place stops atnatural support or resistance on the daily charts. Yet they alsocannot afford, or are unable to have intraday live data. Thishappens when the trader is undercapitalized, or must work full timeat a job, business, or profession. Some overseas traders are unableto obtain live data.
Whatever the case, you have only three choices:1, Learn to bank ticks and build your account.2. Patiently wait for hooks that have acceptable risk.
3. Delay your trading until you have sufficient capitalwith which to begin trading.
If you could arrange your schedule so that you would be ableto use live data to at least enter the trade, then it will be costeffective to obtain a live data feed and the appropriate computerhardware and software. You can build an account much faster bytaking the lower risk associated with intraday natural support andresistance. In many cases, a few successful trades will more thanpay for the additional costs associated with live data.
330
 
Software to read and chart live data does not have to bepurchased. It can be leased on a month to month basis. If itdoesn't work out for you, you can stop using the software, andreturn your receiving equipment for a refund.
To make money in the markets, you must position yourselfproperly. If you do not have sufficient capital to trade the daily,weekly, or monthly charts, then the only other choice that allowsyou to trade is the lesser volatility of intraday trading.
If you should choose to trade intraday, please do not attemptto trade from a delayed data feed. That is tantamount tocommitting financial suicide.
Remember, intraday, you are up against traders who aremarvelously equipped with live data, sophisticated software, andwho are in many cases much better connected on the floor. Theirturnaround time is faster and their fills are better. If you do go for
live data, get the best.
That does not by any means involve paying the most. One ofthe best data feeds in the business also happens to be the least
expensive.
Top notch trading software also does not have to cost themost. You can obtain some of the best for far less than some of the
worst.
 
If, after examining all avenues, you realize that trading is anexpensive proposition, then by all means do not feel badly if youchoose not to trade at all.
If you are bound and determined to trade without properpreparation and facilities, please realize that trading futures is a veryexpensive hobby. Surprisingly, there are many for whom that iswhat trading really is. If you can afford it, and don't mind losing themoney, then go for it. | will be very happy to spend my share ofwhat you lose in the markets. It will be a win-win situation. Youwill have fun, and | will add to my wealth.Chapter 23
Anticipating HooksWhen can we anticipate a Ross hook?
Since Ross hooks are caused by profit taking during and at theend of a trend, there should be times when we can anticipate theirformation.
In the next series of charts, | will endeavor to show you whenand how | surmise that they might occur. While I'm at it, I'll label all1-2-3's and Rh's so you can see how | view these charts. Next toeach number "1," I've pointed the direction to the number "2" with
an arrow.
 
41 a market makes consecutive large bay RhRW | moves in an established trend. |Rh | {
in th I°
| 1) We can anticipate a Ross hook any tine Il 3?
 
  
BPG6
1.847135 86783
 
332
 
           
Ve can anticipate a Ross hook any time we have a gap or aseries of gaps.
We can anticipate a Ross hook any time ue have a combinationof a large bar move coupled with a gap, or vice versa.
ZF S| FOR MENU
t I want you to potice on this chart the places where Rh’s cone too close to
¥ 3 one another. The signals to take grafts and run. “fralso want 9rh to notice another way I could have viewed this chart. In very small printT have shown that you could have begun a new count from congestion areas,
How you choose to do it is up to you. He each perceive things in a{y} senate different way.
    
   
One way to renumber is to begin a newcount gn every retracenent that lastspore 3 bars before. turning
+ counti t ofSongestich and into a new established trend.
This is the way ] was originall: faugpt to follow a trend,and the reason I wante; £ the Rh.
    
968
 
 
CCa?1441.251 86/83 ZF S| FOR MENU
 
 
 
333Ib=large barg =gaPp
Not narket correction is a Rh. But notice how oftERS heat far move, the market at least often
if t£2 mengnte ng aa move by reversing its
sis ey yo Beetle
 
 
Most of the Ross hooks on this chart came as the result oflarge bar moves. Can you find then?I started the series out for you at the 1-2-3 low.
The 1-2-3 low followed by a hook, gave the basis forcounting your way out of congestion and into anestablished trend.
There are also some 1-2-3’s followed hy hooks,that went nowhere, Find them and see if eventuallythey were taken out,
 
There is a 1-2-3 high 4followed by a Ross hook,can you find it? Had youentered on a ITE, wouldyou have been hurt?
 
 
 
 
 
 
334
Copper is one of the choppiest markets around.It’s full of gaps and large bar moves. Could youhave anticipated a great many hooks in this market?
 
183.6575 66/83 ZF S| FOR MENU
 
The Bonds are the Pork Bellies of the financial world. They makelots of excursions where the result is a running of stops, Whentrading the Bonds, we cannot anticipate hooks based on large barmoves or gaps. Most Rh’s in the Bonds come as the result ofreversal days. I’ve placed an * by each hook that happened asthe result of a reversal day.
      
104
  
 
 
 
US86 PRESS +184.7974 86/83 _ ee ZF S| FOR MENU |A
ll| | | jh (hy fi Ii I
| | ih Wyfmt Wy
{ The daily S&P has so many large bar moves,“ty that they become meaningless for anticipatory| | purposes. The S&P is not a market to gap very much,which gives other kinds of opportunities in that youLL can trade the almost certain overlap from day to day.
SP86 PRESS +L_ 426.6399 86/83 ZF S| FOR MENU
 
4
|
 
g-yapIb=large bar
75 ¥=reversal bar it chat oe] *; i i ii | it if
fo
 
 
 
 
 
 
sl sti
wl i
iiri Wi
| Live Cattle gives a mixture of anticipatory signals,
Lil
situation,
i,
   
|
75 83974
    
 
86,
783 ZF S| FOR MENU336
     
 
jal is an odd market because much of the open interest in Soyneal is due tospreading. For instance, Soybean traders will often hedge their position by takingan opposite side spread in the Soymeal for protection. Also sharing
the open interest in Soymeal are Soyoil traders who hedge by spreading
off on the Soymeal. Add to these, those traders who trade the Crush |Spread, and you have an unusual market where| many of the fh |]
 
 
st
participants are T as part of something || else they are doing.
Ly ayee
 
| I thought it might be fun for you to gothrough this chart and look for anticipatory hook signals,
My Good luckt
 
 
 
 
By anticipating when Ross hooks may occur in the market, wehave a basis for planning our trades. Simply the act of anticipatinghelps in obtaining market perspective. We have something concreteto look for.
By examination of the chart and looking for potential hooksituations, we become more familiar with price behavior as depictedon a bar chart. This exercise in itself will help you to become moreastute as an observer of market action.
| have developed entire methodologies based on what | havelearned by anticipating Ross hooks. For instance, theaforementioned fact that the daily S&P 500 almost always overlapsthe previous day has resulted in a way to trade the daily S&P thatgives winning trades over 85% of the time. | want to go on recordhere that | do not and will not trade the daily S&P chart and hold itovernight because of the outrageously overpriced marginrequirements. But the overlapping phenomenon has aided andabetted my intraday trading of the S&P on a five minute chart.you think about it, you will see ways to take advantage of that thet.
337
t|||||||||Chapter 24Wrap-Up
At my seminars, | teach you workable strategies. | teach youhow to take home your piece of the market.
| teach you how to trade profitably. You must know what theinsiders are doing and trying to do. This can be read from a simplebar chart. | show you how to accomplish that.
You need to know a whole lot more about brokerage than mostof you do. | give you the inside knowledge you need to tradeproperly.
There is a lot of truth in the market, but few know how to findit. Yet when I show you, it becomes simple. On your own, you canspend years struggling and never discover the reality of how to tradeprofitably. Most go broke before they learn how to trade and makemoney.
My experience with my students has set me aghast at theappalling ignorance of most people who attempt trading. Even thosewho have been at it for a number of years do not seem to realizehow little they know of the markets and how to trade them. Is itany wonder that so many lose? Is it any wonder that so many leavethe markets frustrated and utterly defeated? They have lost theirmoney, their integrity, and their pride.
Some of the things you will want to know are beyond thescope of this book, but are contained in my teaching letter, TradersNotebook, my books, Trading by the Book, Trading by the Minute,and Trading Is a Business, and in my private seminars.
| hold regularly scheduled (and sometimes unscheduled)seminars for those who wish to pursue their education even further.If you desire to be a full-time trader earning your living in themarkets, my seminar will be of great benefit to you. The same istrue if you are already a full-time trader.
338
I've never had a professional trader say he was sorry he cameto one of my seminars. On the contrary, most have taken theseminar more than once and have become regular subscribers to myteaching letter. They leave glowing with new knowledge.
Now, at the tail end of my trading career, | have dedicatedmyself to teaching others how to trade profitably. It is with thatpurpose | have written this book.
| hope you have enjoyed it and profit from it. There is a lotmore in this book than you can absorb in a single reading. It is mydesire that you read and study it over and over again.
| still trade most days, so if you call and | ask you to hold for aminute, hang on, and get right back with you. If you can't wait,hang up and call again. My number is (512) 259-0727.
 
Because so many of you have asked, | have madearrangements for you to purchase a computer at a reasonable price,especially configured for trading. If you want or need one, call.Sometimes we have used computers.
 
If you would like to know about live data feeds, call. If youwould like a referral to Bonneville, | get "goodie" points for sendingyou. I'll see to it that you get preferred treatment.
| get a gold star if you decide to use Ensign, or Aspen.
Market Detective for end of day analysis is available onlythrough Ross Trading. It has many outstanding features. It's $595.
If you want it, call.
Investograph Plus Special Edition / RT for end of day analysis isavailable only through Ross Trading. It's $595 if you want it. Theprogram does all the studies you see in this book as well as manyproprietary studies created by Bob McCullough . If you would like topurchase this special edition let us know.If you would like a private consultation, either by phone or as aguest in my home, the rate is $400 an hour, during regular businesshours. If | must come to you, the rate is $400 an hour duringbusiness hours plus expenses (8 hour minimum).
If you would like referral to a few honest brokers, | will be 1happy to supply you with their names. Being an unlicensed person, |cannot recruit for or refer to any single broker. But over the years |have used and come to know a few who will give you a fair shake ata reasonable price.
In some cases you will be able to obtain very low commissionsand still get good service. In some cases, where qualified, yoube allowed to call directly to the floor. If you would like such areferral, call.
 
If you want personal references from those who have read mybooks, currently read my newsletter, or have taken my seminar, call.
If | can be of further help, call. If you do call, please have your ‘questions organized and ready to go. | don't mind talking to anyonewho needs help. Don't decide for yourself that I'm too busy or tooimportant. That's my decision to make, not yours. I'm here toserve. I'm available from 7 A.M. to 5 P.M. Central Time Monday -Thursday.
If you have a FAX and would like to send us a message, thenumber is (512) 259-0747.
If you have specific questions that require a written answer,please include a self-addressed, stamped envelope. Normally youwill need two stamps.
Joe Ross
Ross Trading International Inc.
POB 1509 ‘Leander, TX 78641
(512) 259-0727, 7 A.M. - 5 P.M. Central Time, Monday -Thursday.
FAX (512) 259-0747
340
With all sincerity, | wish the very best for you in your trading.
341
{|||||| 
 
mo HNnLY Bh mean o
o | 3 =2a | a2308 cd 7a(4 2889 1 7788; a 0 il g “aap, a I So i ii (3 2480bel i Hag a | i | ue 7a| skin HH } Rh? 2200 i sysell tt , 2108h aa IM | 2188 | Rh , l 28ai 2 i 2888 if 3 2 fl 1988i, (oes feS Hrbuy 2 : ry 1708 i b im1688 15881588 14081409 | 13091380 1200ti | ia
lil |
 
 
 
 
 
 
ili | m |As you look across the chart, you see that the same area acts
I've marked the chart as | would have were | trading it. We as a support area throughout the time length shown on the entiremay not agree on all points, but when | trade | don't always see chart. A period of approximately ten years is shown.everything that's there. There is no absolute right or wrong. It's |possible to miss a bar and get a different result in the way it is Note that the steep downtrend ended on a reversal bar. I'vemarked. The important thing is what you see, and learning to trade 1 labeled it ‘A’. The reversal bar was a near double low along withwhat you see. the previous bar. The reversal bar forms an Rh. Although not' labeled, the bar immediately prior to it gave a TTE of 12 points.
  
For instance, at the beginning we see a steep drop in Bean Oil
Prices down to a support point in the 1800 price zone. This near double low at the 1800 price level two months in a
row is significant. Later, significant lows occurred in thatapproximate price area. I've marked them B1-B4. These wouldhave made excellent buy points.
342 343BO MONTHLY
RhGQ1
 
In addition to being good buy points, B1-B4 are naturalsupport. It's interesting to note that with the exception of B4, all ofthem hit bottom on a reversal bar. On B-4, the reversal came a barlater. Would this not suggest to you that reversal bars are extremelyimportant. The taking out of the point of a reversal bar is also
important because natural support is being violated.
240821682888
16881788
1588
Now, look at the highs, the points of resistance. With the
exception of C1, they all occur on reversal bars.
Next look at the 1-2-3 lows. Every one of them began with a
reversal bar.
344
 
 
BO MONTHLY Rh
1168I ™
  
Are you beginning to see the importance of the concepts I'vebeen showing throughout the book? 1-2-3 lows are extremelyimportant basing points. Rh's occur at extremely important supportand resistance points after a correction.
The taking out, the violation or breakout of these areas,generally results in important moves in the markets. Obviously, abreakout on a monthly chart is far more significant than a breakouton a5 minute chart. The resulting moves are many times greater inmagnitude, These are worth waiting for.
Now let's look at the congestion areas.
345
q
i
|ae|
|
|
|
|
|BO MONTHLY Rh
3388
3168
SEEZESZZE
2188
198818881788
158814881380
 
11681888
 
Hull f
Every one of them is preceded within a bar or two by a largesingle bar move. It’s as though after a significant market move, the
market must rest.
Every single congestion on the chart meets one of our criteriafor defining congestion. We have congestion by alternation, whosebottom is B1, We have congestion by virtue of four closes withinthe price range of a measuring bar just to the left of C7. To the leftof C5, we have congestion by alternation with a wild card doji bar.Above B2, we have congestion by pairs.
346
 
What I'm trying to do with this example is to show you thatyou do not need to trade exactly as | do. If you understand thebasic anatomy of markets, and how to read a chart, you can comeup with your own techniques. You do not need an oscillator to tellyou what is so plainly on the chart before you. There is a rhythm inthe markets.
All markets do essentially the same things. They congest atand around major support and resistance points. Then they testthose points. Stops that have accumulated around those points arerun by the floor traders. Then the market is free to breakout andtrend. You can choose to trade the trend, the trading range, orboth.
Remember these important points when trading an Rh that hasbeen in effect for awhile or has occurred at the beginning of asubsequent congestion.
1. Once the congestion is established, you need a second timethrough the hook to re-establish the trend. You have to realize thatonce the market goes into congestion, stops will accumulate beyondthe hook, It is a natural resistance/support point. The first timethrough, the probability is great that in any time frame, stops arebeing run. This may result in a new high/low. Typically, the marketwill retrace to the hook or into the congestion subsequent to the
  
‘hook. Therefore, the next time through the hook is an excellent
entry point for a continuation of the trend. The stops have alreadybeen run, and there should be clear sailing from then on to the nextresistance/support. This is why many professional traders will tellyou to buy new highs and sell new lows. There are no stops to berun and no resistance/support areas to get in the way.
2. When is a hook too old? This is a question | have wrestledwith all my life. As far as | can see, old hooks never die, they justfade away. They are gone when | can no longer see them on mychart. Once in congestion, there is no TTE or SE. The hook itselfbecomes the entry point for the second time through.
347Listing of Charts
1-2-3 High and subsequent Ross hook, 42, 43
1-2-3 Low and subsequent Ross hook, 44
1-2-3's look like this, 34
50% trailing stop to protect profits, 159
A variety of congestions, 64
Anticipating Ross hooks, 76, 77
CCI formula, 173
Computing Typical price in a downtrend, 170, 171Computing Typical price in an uptrend, 168, 169Congestion - what it looks like, 59, 60
Congestion following a Ross hook, 71, 72Congestion VS not congestion, 60, 62
Cost covering stop - the need for a cost multiple, 150Difficulties in daytrading, 146, 147
Dojis - what they look like, 63
Engineered markets, 89, 90, 91
Formula for CCI, 173
Gap openings - never take them, 78
Inside bars - what they look like, 63
Keltner Channel, 222
Keltner channel VS moving average bands, 247
M and W congestions, 64, 65
Market aberration - how to handle, 153, 154
Moving a stop up to protect profits, 159,160
Natural support and resistance points, 132
Natural support point, 133, 135
Reverse Ross hook, 68
Reverse Ross hook, trading, 70
Review 1-2-3, hook, 282
Ross hook at end of trend and start of congestion, 65Ross hook self test, 65, 66
Ross hooks don't need a number 1 point, 46
Second time through , trading example, 325
Series - Anticipating Ross hooks, 332, 333, 334, 335, 336, 337
Series - changing the multiplier on a Volatility Stop Study, 142,143, 144
Series - crossover filtering and divergence, 195, 196, 197, 198,199
 
 
348
 
Series - differentiating pointy places, 54, 55, 56, 57, 58, 62Series - Eurodollars, using the Study, 200, 201, 202, 203, 204,205, 206, 207, 208, 209, 210, 211, 212, 213, 214, 215, 216,217, 218, 219, 220
Series - filtering a TTE with CCI, 179,180, 181, 182, 183, 184,185, 186, 187, 188
Series - filtering trades with Keltner Channel, 226, 227, 228, 229,230, 231, 232, 233, 234, 235, 236, 237, 238, 239, 240, 241,242, 243, 244, 245
Series - filtering with Bollinger Bands, 259, 260, 261, 262, 263,264, 265, 266, 267, 268, 269, 270, 271, 272, 273, 274, 275,276, 277
Series - fine tuning vai304, 305
Series - hooks can be too far away, 319, 320, 321
Series - identifying what we see, 114, 115, 116, 117
Series - plain vanilla stops, 283, 284, 285, 286
Series - rules for filtering with CCI, 176, 177, 178
Series - showing too long a time period, 322, 323, 324
Series - tick banking, 249, 250, 251, 253, 254, 255, 256
Series - too much volatility, 312, 313, 314, 315
Series - Trader's Trick, 93, 94, 95, 96
Series - trading anticipation in Crude 80, 81, 82, 83, 84, 85,101, 102, 103, 104, 105, 106, 107, 108, 109, 110, 111, 112,113
Series - vanilla trading with Slaughterbeck entry, 289, 290, 291,292, 293, 294, 295
Setting Fibonacci expansion objectives, 158
Stochastics, crossover concept, 194
Stochastics formula - how to compute, 190
Trading a second time through, 325
Trading anticipation, 80
ining, 52
Trend identification rule, 52
Two computers, 129
Using a moving average stop, 155
Volatility Stop Study - what it looks like, 141, 142, 143, 144Volume can dry up, 317, 318
la hooks, 298, 299, 300, 301, 302, 303,
 
  
 
 
3491-2-3 High, 37
1-2-3 High - what it means, 36
1-2-3 High and Low defined, 32
1-2-3 High and subsequent Ross hook, 42, 431-2-3 Low, 35
1-2-3 Low - what it means, 35
1-2-3 Low and subsequent Ross hook, 441-2-3's - how they look, 34
Acknowledgements, 7
Advantages of natural stops, 134Anticipating correction, 79
ipating correction length, 79Anticipating hooks, 76, 332Anticipating trend resumption, 79Anticipation - trading anticipation, 80Automation - the need for, 125Avoid these hooks, 311
    
Bollinger Bands for filtering hooks, 258Bonneville data feed, 8Bottom line in trading, 14
Capitalization, 23Capitalization - what to do if undercapitalized, 330Caution, 11Chart1-2-3 High and subsequent Ross hook, 42, 431-2-3 Low and subsequent Ross hook, 441-2-3's look like this, 3450% trailing stop to protect profits, 159A variety of congestions, 64Anticipating Ross hooks, 76, 77CCI formula, 173Computing Typical price in a downtrend, 170, 171Computing Typical price in an uptrend, 168, 169
 
350
 
Congestion - what it looks like, 59, 60Congestion following a Ross hook, 71, 72Congestion VS not congestion, 60, 62
Cost covering stop - the need for a cost multiple, 150Difficulties in daytrading, 146, 147
Dojis - what they look like, 63
Engineered markets, 89, 90, 91
Formula for CCI, 173
Gap openings - never take them, 78
Inside bars - what they look like, 63
Keltner Channel, 222
Keltner channel VS moving average bands, 247M and W congestions, 64, 65
Market aberration - how to handle, 153, 154Moving a stop up to protect profits, 159,160Natural support and resistance points, 132Natural support point, 133, 135
Reverse Ross hook, 68
Reverse Ross hook, trading, 70
Review 1-2-3, hook, 282
Ross hook at end of trend and start of congestion, 65Ross hook self test, 65, 66
Ross hooks don't need a number 1 point, 46
Second time through , trading example, 325Series - Anticipating Ross hooks, 332, 333, 334, 335, 336, 337
Series - changing the multiplier on a Volatility Stop Study, 142,
 
143, 144 .Series - crossover filtering and divergence, 195, 196, 197, 198,199
Series - differentiating pointy places, 54, 55, 56, 57