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K—Learn to ignoremarket aberrationswhen you trade. _,
FEB
One of the best lessons | ever learned was to ignore priceaberrations in the market. When some weird political event,announcement, news, or rumor causes a one or two day abnormalityin the markets, look to where the real price action is and design yourtrades from that reality.
Now let's look at an intraday chart. | get tired of watching theS&P all the time. For a change, let's look at the New York StockExchange Index.
274
 
YX H.5 MIN y28,223125
  
It’s no fun for me to do then all the time.
    
22775Why don’t you try it on this one?
22588
You should have found at least one good trade on that chart.
Rather than try to set a number of rules around trading withthe Bollinger Bands, it seems to me it's better to give you the overallapproach.
What we're really looking for is to catch a trend just as itstarts.
Typically, the market will have been in a trading range of somesort, and we want to catch it as it breaks out, or shortly thereafter.
275YX H.5 NIN y28,2
2297522958229252298822875228582282522888
22725227882267522658
2268822558
2252522588
 
Once the bands start trending, we can expect them to continueto trend for awhile.
What we look for first is a market that is in congestion. Next,we look for prices to begin to cluster on one side of the center line.When that happens, we anticipate a trend in the direction of the sideof the center line on which the cluster begins to form.
 
If the cluster is above the center line, we anticipate going long.If the cluster is below the center line, we anticipate going short.
276
 
 
 
YX H.5 MIN y28,223125
2318823875
Usually, a Ross hook will have been made somewhere alongthe way, very often just at the start of the cluster. When that hookis taken out, with prices having remained predominately on one sideof the center line, we can take the trade.
In the preceding examples, ! purposely included some marketswhich were already trending. As you can see, once the marketbegins to trend, the Bollinger Bands don't do much good.
Please note that | tried to mark and take just about everything
possible. This is not the way | would normally trade. In fact, this isover trading.
277 
Each market is shown as if it were the only game in town. Ofcourse, if you regularly trade just one market, you may have to use
additional filters for your trades.
In the examples above, | did not use any filters other than thebands themselves. In actuality, | could use The Study, and CCI to
filter many of them.
Another thing | want you to realize is that | most certainly .didn't trade most of the situations shown in the examples for thischapter.
I did not attempt to show you where to put your stop. You
should find all the information | can possibly give concerning stopplacement in the chapter on stops and in the chapter that follows.
278
 
 
Chapter 17
Vanilla Hooks
I've spent a good deal of time and space showing you how touse and trade the Ross hook along with some of the more popularindicators being employed by some of my students.
In this chapter, I'm going to show you how | trade the Rosshook with no indicators or oscillators of any kind.
| traded and still do trade Ross hooks this way. It's myfavorite way, it brings me my best results, and you need nothingmore than a simple chart. As a matter of fact, all you really need isa newspaper! The chart is there for visual confirmation of the truththat | have found in the markets.
I'm going to prove to you conclusively that my method works.It has been working for me for virtually all of my trading career. Youcan take data going back over one hundred years and prove that ithas worked consistently for that length of time.
During the years | have traded, the markets have undergoneconsiderable change. When |! began my career, futures tradingconsisted primarily of trading in contracts that centered aroundthings people consumed: plywood, oils, meats, and food items.
Later, metals, currencies, financial instruments, and the stockindices were introduced. New contracts are still being presented,until there is now a plethora of contracts in which to trade.
Gone are such futures markets as potatoes, onions, and oceanfreight. Reintroduced, but not much traded, are broilers andsorghum.
| have seen markets come and go. | have seen traders comeand go, and yet the methods that have consistently made me moneyare still there. They have not failed me.
279| have seen the trading community go from a few thousandtraders worldwide, to many thousands, perhaps millions of tradersworldwide.
This has changed the nature of the markets, but still my wayof trading the Ross hook works.
| have seen the introduction of computerized trading utilizingmodels, programmed trading, intraday trading by computer fromone's home, the concept of intraday charts down to the tick level.Still none of these have caused me to change one iota from the way| was taught to trade or from the truth that is extant in the Rosshook.
  
| have seen what had been orderly trending markets turn intofrenetic, jittery, temperamental markets due to introduction of manyof the items mentioned, yet plain vanilla, simple trading of the Rosshook has never had to be changed.
 
If you detest complicated trading, as | do, you are in for atreat.
If you are tired of all the phony hype about "this indicator" or"that oscillator," this chapter is for you.
If you are worn out by backtesting of mechanical systems,multiple modification of parameters, and complicated technicalanalytical striving, then you will have found what you are lookingfor.
If you are angered or bored to tears and frustration trying tomake sense out of Elliot Waves, Cycles, Seasonals, Astrologicalconcepts, Andrew's pitchfork, Gann, Fibonacci, fractals, chaos,scale trading, or any of the myriad synthetic approaches to themarkets, then you need to learn how | trade the Ross hook.
Am | now about to present you with the Holy Grail? No! |
have been laughed to scorn by many of the so-called technicalgeniuses who peddle their wares in the markets.
280
 
When | presented the simplicity of the Ross hook to one of thegreat Fibonacci luminaries of our time, he snickered. Hepatronizingly told me about the magic of Fibonacci retracements.
When | explained what | do to another famous hustler (trader?)of a magic triple-ripple trading system, he laughed, and wonderedaloud how such nonsense could ever work in today's sophisticatedmarkets.
Although | have written over and over again about thesimplicity of my trading, even my own students find it difficult toaccept without modification what I'm going to show you in thechapters ahead. That is why they have introduced many of theconcepts previously shown in this book. The combining of technicalstudies with the Ross hook is not my idea. They are ideas andconcepts that work. However, in my opinion they are totallyunnecessary.
| say this because the way | trade, such filters are nothingmore than assistance, a help perhaps, if such a device is evenneeded. | wanted to share them with you because they work.
We do not all have the same orientation. We do not all see themarkets in the same way. Certainly, with my dyslexia, | do not seemarkets as would most people. Since | cannot teach you how tobecome dyslexic, | have shown you successful ways that are usedby my students. However, | do have students who are not dyslexicwho use my "plain vanilla" methods with as great success as my
own.
 
What | do with the Ross hook works. It has always workedunder the conditions | have established for its use. It has withstoodthe test of time. It works in every time-frame for which I've tried it.However, it does not work in every time-frame for every market.This is because in the lesser intraday time intervals, a chart may notform properly to enable the visualization needed for trading the
hooks.
Examples of this would be a five minute bond or five minutecorn chart. These rarely make formations other than "boxy," flat
charts, in which the same prices are hit repeatedly.
281 
My solution to this is to simply trade a greater time-frame.
There is only one time when Ross hooks do not work, and thatis when a market is not trending. Since, by definition, a hookcannot be formed when a market is not trending, this presents noproblem. The Ross hook by its nature cannot and will not work incongestion, because it cannot be identified in congestion. How |trade in congestion is beyond the scope of this book.
The Ross hook cannot be identified until,and unless a market istrending, or is about to trend. The identification of the Ross hook issimultaneous with the identification of an established trend.
Let's look closely.
We must first identify a 1-2-3 high or low. On intraday,weekly, or monthly charts the 1-2-3 formation may consist of onlythree bars. On daily charts, it's better to have at least four barscomprising all three points.
We must next form a Ross hook.
No matter what happens in the market, we cannotconsider that we have a trend reversal until and unless we form a 1-2-3 high or low in the direction opposite to the recent trend.
Once we have had a trend reversal, we can trade theRoss hook that establishes that reversal as a new trend, and anysubsequent hooks. | will now illustrate what | have discussed to thispoint in the review.
2 i; We must first form a 1-2-3 low or high.{' The #2 point is violated. Then, the hook} ih ts forned by virtue of the ensuing4-2-3 Low | ° 1teamt \y tf f |7H tf
 
Now, allow me to answer some simple questions:1. Where do | place the stop?
When trading without technicals such as the Volatility Stopstudy, | use only natural support and resistance points. The nextseries of charts will show where | place the stop, coupled with mymoney management scheme.
; "ll be showing charts in time-frames from monthly down tofive minute.
NY LT CRUDE OIL FUTURES JLY — CLN
= nextsupport
   
49 BGHES ACL ACE ISA/20 | B/1 B/115718)5725)671 6/8 (6715 Daily
As soon as possible after entry, | use one contract set to covermy costs.
Now let's look at a sequence of events. When the bar labeled‘b' takes out the point of the Rh, | place a stop one tick beneath it at‘a’. Since 'a' made a new low, and then bounced, it is now support.
283| will be going into further detail about when to move stopslater on. At this point, concentrate on the where of natural support
and resistance.
NY LT CRUDE OIL FUTURES JLY — CLN
 
i Wie WAR We
Bar "b" did two things: it took out the hook, and becamedouble support because it has the same low as "a
 
When the point of the next Rh, 'c’ is violated, | will move thestop to one tick below 'f'.
When the point of the next Rh, 'd’ is violated, | will move thestop to one tick below ‘g’.
When the point of the next Rh, 'e' is violated, | will move thestop to one tick below 'h', etc.
 
III. A natural support or resistance pointaluays occurs as the result of a 52881 reversal bar. It can be coincident with 5the reversal bar, or it can be subsequent 188to the reversal bar. As soon as it is in 9888place, the stop should be moved. 4988
GC MONTHLY
I. 'e’, the bar following it,and the bar narked "1," allreverse the thrust of e-
Bythe uptrend. ‘They all ;opened higher than |they closed,
Rh | 5IT. Reversal bars are Kod
This explains why I] show a stop 4788below bar ‘e’ and above bar ‘j’.
<-f i 4480
h t 4388Ii
another indication
of the end of a trendand a time to 3pull stops § 4168
|closer to vthe price 3 4 Ch 3988action-py | er | i Hl k ci peedTU How do you know Rh 22 ty | 3688| 2 Rh vhen natural support 3h i I 3588| or resistance is in place? Rh Rh s 3488
iH eb Vhen you can see that it is theret That means in an omuptrend, when there is a reversal bar, you nove the stop 3109i 3o beneath it when you see the following bar not making a 3p00new lov. It can make an equal low, but not a new low.
When you see that, you have natural support.
 
 
Let's go through the above monthly Gold chart in great detaWe'll start with a 1-2-3 low. Subsequently, we have a Ross hook.When the hook is taken out, we place a stop at 'a’ which is anatural support point consisting of two equal lows.
 
Next, we make another Ross hook. When it is taken out, weplace a stop at 'b.' This process is repeated at both 'c' and ‘d'.
Notice, beginning with the reversal bar 'e' the hooks areforming at a much greater frequency. The market makes its lastmove up. The trend is about to end due to exhaustion. The marketis running out of buyers.
285Consequently, we begin to move the stops, 's’, up tight. Wetrail them just below the low of each month until we are stopped
out.
III. A natural support ar resistance point6c MONTHLY always occurs as the result of a 52081 reversal bar. It can be coincident vith 51081 . the reversal bar, or it can be subsequent C997 ete eens to the reversal bar. As soon as it is in 18a Pr , , the stop should be moved.reverse the thrust of e-— Rk place, the stop shou no 4800
the uptrend. ‘They all 5 dn This explains why I show a stop 4788opened higher than | belaw bar ’e’ and above bar ‘j’. 4689Rh 5 |
they closed.hey } 4569IT. Reversal bars are Kea cfoo4 4468another indication 1 4388of the end of a trend 2 | 4288and a time to | g 3 4188pull stops 1 4988closer to | v 4 3908the price Rh \ Ch 3828
action. pp Kee | <-i_;i ae'U How do you know Rh 2/2 |
| 2 Rh mn natural support Bh Rh Rh 3888‘ or resistance is in place? Rh iy 34083388
i «b When you can see that it is there! That means in an 3799uptrend, when there is a reversal bar, you nove the stop 3100
3oa beneath it when you see the following bar not naking a 3peanew low. It can make an equal low, but not a new lov. ‘When you see that, you have natural support.
298828882788
 
Subsequently we make a 1-2-3 high followed by a Ross hook.
We trail our stop at natural resistance points, 'f' through ‘j'.
 
Then the hooks begin coming close together, one right afteranother, and the angle of-descent has flattened out considerably,typical of bottoming/topping or congestion. We are, at least for themoment, running out of sellers. We then start to trail our stop, 's,’just above the high of each month.
286
 
Now, with reference to natural support and resistance, somewill ask:
A. "Why did you show this using monthly charts?" | usemonthly charts for the following reasons:
1. Some of my readers and certainly some of mystudents can afford to trade the monthly charts. They have becomeseasoned, patient traders, and add monthly chart trading to theirregular trading activity — yes even some of my students whodaytrade the S&P on a three minute chart can find time to pick upthese beautiful monthly trends!
2. | will not penalize the trader with deep pockets infavor of the trader with a small account.
3. The opportunities with Ross hooks are numerous ifyou have a long-term outlook on markets.
4. Too many traders have gotten away from the monthlychart in favor of the daytrading mania that has taken hold of thetrading world. For those who can afford to trade the monthlycharts, and refrain from doing so, you are missing out on a lot of fatprofits.
5. For those who daytrade, please notice that with theexception of the amount of money involved, the price action on themonthly Gold chart is not at all unlike a five minute S&P chart.
B. “How can you afford to keep the stop so far away?"
By patiently building an account to a size suitable fortrading monthly charts.
C. “How can you afford to keep stops at natural support orresistance?"
By reducing the time frame in which you trade to an
affordable level. This means that if you have a very small account,you may have to trade a one or two minute chart.
287D. “Are there problems with trading a one minute chart?"
Not if you position trade. Problems with one minutecharts arise only when trying to scalp the markets. In thoseinstances, turn-around time becomes critical.
 
E. "Are some hooks better than others, and if so, which arethe best?"
Some hooks are better than others, but | have never beenable to determine ahead of time which they will be. Sometimes ashallow retracing hook does best, but all too often deeply retracinghooks do best.
F. "How can you get in early, ahead of the breakout?"
1. I've already shown one technique for doing this, theTrader's Trick.
2. My friend Doctor Steve Slaughterbeck has come upwith another that statistically has proven to be of great value. I'llillustrate that next. It has been tested over thousands of
occurrences.
 
  
288
 
CD M DAILY
wl Her Notice the bar marked 's’.1 It occurs during the correction
{ t’s’ will stand for the SlaughterbeckIs ty entry point.
 
FEB MAR
  
8388
The bar that has the letter 's' beneath it had a slightly higher |
close than the open. We want to sell a breakout of the low of thatbar. 's' stands for Steve or Slaughterbeck, and refers to his entry
point.
In a downtrend, when we have a correction that forms a hook,we want to sell a breakout of the low of the first bar subsequent to
the point of the hook whose close is higher than the open.
289In an uptrend, when we have a correction that forms a hook,we want to buy a breakout of the high of the first bar subsequent tothe point of the hook whose close is lower than the open.
There can be only one SE. It is always the first bar thatreverses the open and close, counter trend. It can happen on thefirst bar, the second bar, or the third bar of correction. Beyond thatit is void and you would go to the TTE.
I'll show you two examples, and then we'll look at somecharts.
In an uptrend, when we have a correction that forms a hook,we want to buy a breakout of the high of the first bar subsequent tothe point of the hook whose close is lower than the open.
Rh
he buy « breakout of this hish
|Wf
of this low
i 2011 a breakout,
In a downtrend, when we have a correctionthat forms a hook, we want to sell abreakout of the low of the first barsubsequent to the point of the hook whoseclose is higher than the open.
290
 
 
 
HG K DAILY16488
| =
i 3peg! os 2if =
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94483488
  
eteleterebinbeed
AN FEB MAR
   
W DEC
The Slaughterbeck entry can be used as a filter, we don't takethe hook unless we get one! The choice, of course, is yours.
In the preceding example, there was a Ross hook prior to theone shown. you catch it? I'll show the chart again. Butbecause we did not get a Slaughterbeck entry point, we did not takea breakout of the hook.
 
291HG K DAILY
   
N DEC
Because thousands of tests have shown that the
1848818368163281828818248162881616816128168881884816888396899289888984898883768972896889648968895689528348894489488
Slaughterbeck entry works so well, it can actually be used as a filter
for hooks. You have the choice of taking the point of the hook, theTrader's Trick, or the Slaughterbeck entry.
Naturally, you will miss some good trades, and some will turnout to be not so good even though you waited patiently for theSlaughterbeck entry to develop. But overall, you will win a higherpercentage of the time following this entry point.
292
 
Sometimes you simply have to choose based on other thingsyou see on the chart, or even on the chart of related contracts.SIX DAILY445)442!4488
N DEC
 
I'm not going to try to show you every trade on these charts. |simply want to point out the obvious 1-2-3's, followed by Rosshooks with a Slaughterbeck entry point.
Remember, the bar that makes the point of the hook cannot beconsidered a Slaughterbeck entry point. At times, it may be the onlybar that meets the criteria. In that case, you will want to considertrading a breakout of the point of the hook itself.
293Does it matter that I've been showing the Slaughterbeck entryonly on daily charts? No! You can see these on charts of most anytime frame. Later I'll show some intraday charts, and in anotherchapter I'll show some weekly and monthly charts.
CL K DAILY
 
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i || | < 1985| hot i
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The Slaughterbeck entry point is present for the Ross hook,and the trade would have resulted in a profit provided you had exitedall positions prior to the huge gap down that followed some dayslater.
294
 
 
 
No, we don't win them all. Even when we are right, we canend up wrong. But if you had followed my management schemeyou would have come out okay. You would have banked ticks fromthe #2 to the #3 point. You would have covered costs. Hopefullyyou would have taken at least another profit when you saw thecongestion, and perhaps even exited at that time.
 
Money and trade management have a lot to do with the finaloutcome of a trade.
1 often will trade a one minute S&P chart. | do this to keep myrisk very low. For some, it’s the only way they can afford to tradethe S&P. As long as you position trade on one minute charts, youwill have no trouble with turn around time. It is only when you tryto scalp on one minute charts that you can get in trouble. There isno way to keep up with the floor. They are faster than you can everbe.
SP.N.4 MIN41894
418884188241876
41878Ir 41864
 
 
295"How can Ross hooks be traded from a newspaper?"
 
, with its free graphs, make itpossible. Another way is by keeping a columnar table containing thenecessary information. Here's how to do it:
Record the daily, weekly, or monthly high and low for allcontracts you wish to follow.
Notice when a contract is making consistently higherhighs. As soon as the contract makes a lower high, you have aRoss hook. Call in an order to buy 1 tick above the highest high.Place a profit objective order for however many points you need tocover costs. This will result in your trading the breakout of thehook.
To use the Trader's Trick, refrain from placing an order assoon as the contract makes a lower high, unless there is roombetween the lower high and the point of the hook for you tocomfortably cover costs. If not, place an order above a highprevious to the point of the hook (up to three bars) that gives roomto comfortably cover costs. Or, you can choose to wait for a lowerhigh subsequent to the point of the hook that yields room to covercosts.
To use the Slaughterbeck entry, refrain from placing anorder as soon as the contract makes a lower high. Keep track of theopens and closes. Place an order above the first bar after the pointof the hook that has a lower close than the open. It's a good idea tobe sure this bar leaves room to cover costs.
Notice when a contract is making consistently lowerlows. As soon as the contract makes a higher low, you have a Rosshook. Call in an order to sell 1 tick below the lowest low. Place aprofit objective order for however many points you need to covercosts. This will result in your trading the breakout of the hook.
296
 
 
To use the Trader's Trick, refrain from placing an order assoon as the contract makes a higher low, unless there is roombetween the higher low and the point of the hook for you tocomfortably cover costs. If not, place an order below a low previousto the point of the hook (up to three bars) that gives room tocomfortably cover costs. Or, you can choose to wait for a higherlow subsequent to the point of the hook that yields room to cover
costs.
To use the Slaughterbeck entry, refrain from placing anorder as soon as the contract makes a higher low. Keep track of theopens and closes. Place an order below the first bar after the pointof the hook that has a higher close than the open. It's a good ideato be sure this bar leaves room to cover costs.
Because I'm dyslexic, it was always a great chore for me tomanually mark and maintain charts. The table made it easier for meto work until the time came when | was able to use a personal
computer.
With the table, even a blind person can trade Ross hooks.
297Chapter 18
Fine Points
There is a lot more to trading Ross hooks than you mightinitially think. | feel they are the single best trading formation I'veseen in the markets when preceded by a 1-2-3 formation.
Ross hook trading can last from several minutes on an intradaychart to several months on a daily chart. They can be traded onweekly or monthly charts for long term trading.
I'm going to make some statements with regards to thefollowing charts. What | say will help you fine tune your trading ofRoss hooks. The things | point out will be true for trading in all timeframes.BP WEEKLY2628820088| 19888| 19688f { 19488| 19288| 1988818888| } | 18688‘ | 184881828818888| | | 17808It 17608if 174881728817888< 168881668816488i 16288ft 3 160081 158881c600
 
298
 
BP WEEKLY vanes
2088819888{ 19688| { 1948819208
19088| 18888
| 4 817888
Mh| » | ns
t | 2 i & buy 17288I < ico' f a
158881 4ch00
 
=—w
Be patient to trade from well formed charts. You want a wellformed, clearly seen 1-2-3 to precede the hook.
Trade only in a time frame in which you can afford to place thestops according to the Volatility Stop study, or better yet, a timeframe in which you can afford to place the stops at natural support
and resistance points.
 
For some, that will mean trading a one minute chart. Yet |know that some of my more affluent readers and some of my largetraders and commercial students can afford the natural support andresistance stops on the monthly charts.
299BP WEEKLY28288
20888198881968819488192881988818888186881848818288188881788817688174881728817888168881668816488162881688815888156881548815288
 
   
aS ON DJ FRX ANT IA SON DJ FH82-28 0-17348 H-17682 L-17288 C-17518 V- 11999 I- 23892
Avoid hooks that are made subsequent to a very long 1-2-3formation.
The #2 point in the chart above is much too far from the #1point. This causes the #3 point to be very short in relation to themove from #1 to #2. The best 1-2-3's are more proportionate, withthe #3 point being anywhere from less than 1/3 to a 2/3retracement from the #1 point to the #2 point. In other words, onthe chart above, the 1-2-3 high preceding the hook is not wellformed. However, the 1-2-3 low on the chart is reasonably wellformed.
 
300
 
1-2-3 formations should be well formed and "tight." One wayto tell this is to make sure the #2 point is contained within,