TradeMentors Open Call Dec 21, 2009

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STUDENT QUESTION
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Hi Scott,

Two questions in one what are butterfly patterns and Gately
patterns in forex trading and how do you make use of them
please?


Regards


Richard (from UK)

PS it will be late in the UK will there be a recording?


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DOC BROWN ANSWER
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I assume you mean the “Gartley” pattern.

H. M. Gartley who wrote a book in 1935 called “Profits in
the Stock Market” where he highlighted two patterns:
“Gartley” and “Butterfly”. This is kind of like the Ken
Roberts 1-2-3 which is in my experience the worst indicator
in the history of trading.

The idea behind the “Gartley” and “Butterfly” is to watch
if either forms near important support or resistance levels.

Bullish Gartley



















Bearish Gartley




















The first pattern (Green) is a Bullish Gartley where the market is
supposed to reverse at point D and move higher. The next is
a Bearish Gartley (Red) where the idea is to short at point D
hoping for further decline.

The idea is that leg X to A is an impulse move and the
retracement leg A to D is a distinct two wave move where leg
A to B equals leg C to D (in points).

Next is the Bullish Butterfly



















And the Bearish Butterfly



















The idea is to short at point D expecting further decline in
market price. The difference between this pattern and the
Gartley is that the A to D leg is GREATER (in points) than
the X to A leg.

The reason I don’t use these patterns is due to their
subjectivity in visual recognition making them unpredictable
at best for the serious forex trader. I have found the most
reliable indicator to be the TNT Bears and Bulls indicator
because (1) it gives an objective (clear) signal that (2) I
can Monte Carlo test and quantify and (3) I have been able
to find markets where it gives me a high expected return
with a narrow confidence interval. For more see...

http://www.trackntrade.com/hf/bnb/

--Doc Brown

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STUDENT QUESTION
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Hello Doc,
Happy Holidays to you and yours!!

I may or may not make the call tonight, but I had a couple
of questions to see if you might cover:

1. Gold (the mini contract- GYGG0 Feb 2010) has begun its
downward correction apparently, but my daily charts with
Gecko have not provided a Bulls and Bears sell signal yet.
Should we wait for a minor correction to the upside before
looking for an entry point to go short the market? What is
your take and how would you play this move?

2. Similar question to #1 above but with the US Dollar
Index (DX-MH0), Mini Natural Gas (QGF0). Both of these
commodities have made a nice run in recent weeks, should we
wait for a minor correction to the downside before looking
for an entry point to go long the market? What is your take
and how would you play this move? Based on what I remember
from Stanley Kroll's book, we should be waiting for
confirmation of a change in the major trend. Both of these
commodities look to possibly be making this shift in the
long term trend. How are you watching and trading these
charts?

3. What strategy do you employ when trading long term
(trend change) and short term (scalp trading using Auto
Pilot) with the EUR/USD mini pair? Do you trade a certain
quantity and let it run long term and a certain quantity to
buy and sell on the short term flux using Auto Pilot? I
would be interested to see how you would approach it
currently.

4. In Vegas you mentioned you and Carlos were running
diagnostics on the Auto Pilot with the EUR/USD. How is your
study progressing so far? Is there is take aways you can
share at this point?

Thanks Doc for your support! And Merry Christmas to you!
David

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DOC BROWN ANSWER
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Gold just gave a strong short signal in the BnB indicator
and you missed it. Look for a correction to try to get in
but remember that shorting is harder because markets like
Gold are a lot more volatile downward.











You missed the long signal in both the Dollar Index












and Mini NG. Good fisherman stay by their poles!












I stopped my scalp trading until get my virtual hosting set
up at:

http://www.vps.net/

for 3 Nodes at $54 per month (Best)

Or cheaper at

http://www.forexvps.com/

for $35 per month.


When I position trade I give a lot room for the market so I
don’t trade…I might only trade 1 mini contract per $500 in
the account.













You have to be very careful to not put on such
large positions that you get knocked out. Plus, when I
enter I spend a lot of time looking at where I would be
wrong and want to get out. That influences heavily how many
mini contracts I put on.

Here's my work with Carlos so far in the EUR/USD pair:

http://www.lanturner.com/drbrown-interview.htm

Make sure you download and read the PDFs!

--Doc Brown