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Cloud Hopping is dedicated to the memory of your and our friend
John Denver who died in his experimental airplane on October 12th, 1997. John
touched our hearts with his songs and his touch of kindness reached out to all
living things. Our memories are stronger than death as we search the clouds and
share past laughs. Far out, our Brother in Mankind.
One of the most used tools in trading is perhaps the chart. Charts not only
show high prices, low prices, current prices and other data, which can be used
for derivative information generating. Each trader has their own way of using
and interpreting their charts.
Some make up their own charts while others will buy them from a commercial
vendor. When it comes to their use, Phantom remembers when charts were charted
on a big graph in the pits themselves for all to see. We continue our insight
with Phantom on charting.
ALS - Phantom, sometimes I wonder how organized traders can be with all of
the charts around their offices. I always thought the less information you had
to research during trading hours, the better you would be able to react to the
current market situations. What do you view with your charting?
PHANTOM OF THE PITS - First of all you mean "Cloud Hopping!" On a
Sunday afternoon I would go out to the park and do my charting.
Let me reach over and turn this old radio on with this funny looking knob
here. This big radio is an old timer and it takes me back thirty years or so.
As I turn it on you will hear WGN and the Eddie Hubbard show with his theme
song "Poor People of Brooklyn" playing in the background. I think
that his theme was a spoof on "The Rich People of Paris" but I don't
know that for sure.
I doubt that many old timers will be reading what we say here but just the
same, the past is certainly worth a view once in a while. A look back is good
if for no other reason just old time's sake.
On my Sunday afternoon charting this is what I would see with my charts! I
would look to the sky and see all of these kites flying. My chart would show
this as volume. All of the kites on the ground not in the air and the flying
kites would be the open interest. The clouds in the sky would be my price on
I would chart all of these with a connecting line from all of the clouds in
the top part of the chart and volume and open interest on the lower parts of my
As I saw the movement of the clouds in my sky market I would place another
chart point either higher or lower depending on whether an existing cloud moved
higher or a new lower cloud formed. Anytime I could get a divergence from the
clouds highs and the open interest of kites and volume of kites; I would get a
signal to sell Sunshine futures.
My father would ask me what I was doing, as he would always pick up the
trash from our picnic when the wind would blow it away. I would answer him and
say "Dad, I am CLOUD HOPPING!"
I got pretty good at cloud hopping and sunshine futures as I could predict
when it was going to get cloudy again. I think I was all of thirteen at the
time. That was my first introduction to charting.
I tell you this little insignificant point of my early charts because I have
seen just this week seen examples of just the same things in trading signals
from traders. It may not make much sense most of the time to most of the people
but if it works, who am I to argue. My cloud hopping worked for me!
There are advantages and disadvantages in charting. When you use them to look
back to get signals, you are setting yourself up to believe you can actually be
more right than wrong.
It is possible but you must never forget rule one regardless of how accurate
your chart indicator shows over the past. Just because it worked nine out of
the last ten times does in no way suggest that it will stay ninety percent
accurate. Protect your positions at all times.
I think the main advantage which, I see in charts is that you can plainly
see what will be dictated to other traders for them to think at certain points.
You will remember that I said I don't totally agree that the market is always
right at all times but that is what we must trade with or against.
How many times have you seen public sentiment be a massive majority of
opinion one way or the other? What happens? More times than not the thinking
In charting I have to say my strongest signals are when support or
resistance is broken and thinking is in the majority against what is happening
to that support or resistance.
I don't want to go into specific type charting and indicators as there are so
many of them and so many ways to interpret them. I will try and point out what
I think is useful to all traders the most. I could explain each type of
indicator and charting process but that serves no purpose.
Each trader must decide his or her own criteria for charting. My charting is
based on knowing what the signals of each type indicate to other trades more so
than to myself. I am always looking to find what is the edge to me.
I don't care about what the charts indicate if they are not my tools but
since others do use them, I must be aware of those indicators. I need to know
what other traders are thinking.
I don't position opposite to my signals ever but that doesn't mean I don't
position opposite to my fellow trader's charts and indicators. My criteria
takes into account the other signals though not directly a signal indicator to
There are many trading plans based on various charts and indicators, which
can be accurate over a period of time. The biggest problem with the dependable
plans is that rule one and two are not a part of the plan and the traders never
get to trade in the long run.
The trade plan may have what they call money management but that is always a
weak point in the plan. Drawdown eventually demoralizes the traders. In the end
all is lost.
ALS - Do you have any specific advice on using charts?
POP - Yes, when you see what most charts give you, it is clear that everyone
is looking at the same data to establish a method of being the most accurate.
The key in usefulness of charts as far as I am concerned is that you take
everyone else's chart with a grain of salt and establish your own charting to
be reflective of data not usually known to others.
All bar charts show the same things. It is a daily chart of high, low,
close, open, volume, open interest and other moving averages or indicators.
This is one reason I prefer a chart like a point and figure chart. It removes
the daily bar graph points as the most important for that day.
Let me ask you what would you think of a chart, which takes the same
parameters as a standard, bar chart but your daily high, low, close and open
data had a time frame different than daily? You would laugh. I like that laugh!
It tells me I have no competition with the idea.
I will give you an idea and an example here. Let us say you take and make a
chart, which starts one hour and fifteen minutes prior to the close of a
market. We will justify this by saying that the most important trading data for
a day is in that last part of the trading day. We will call this the opening
for your next day's chart.
One hour and fifteen minutes of today's trading is already on tomorrow's
chart. We will call this tomorrow's support and resistance. We continue to
chart tomorrow until one hour and fifteen minutes prior to the close. This
closes out our day's trading chart.
Ok I think you see what I am getting you to think about. Now keep in mind I
am not giving you my way of charting but using this as an example of how to
change your behavior when it comes to charting.
Most traders will never chart this way for several reasons and that to me is
good. They can't get the data this way as they may only get it out of a
newspaper, delayed or through a broker. Other reasons exist which prevent them
from getting a different outlook chart.
I feel you need a jump on tomorrow's trading to get the edge. The edge to me
is important but not as important as execution. It is just that with the edge,
you can get better execution. You are ahead of the game because you are in
front of the day traders, funds, scalpers and position traders because you are
not using their data to follow them.
Instead you are using your data to look beyond their view. By using rules
one and two, you can establish a plan which is a little more remarkable than
anyone would think.
You will have to do back testing and research and most traders can't even
come up with that data yet even today. I guarantee in the future there will be
those who look at what I have done lately and say it is time to make the
computers earn their keep. You see the frontier is just now opening!
The sharpest trader with the most intuition will win here. I want you to
remember where the idea of "Different Outlook Chart" came into play.
It started with me when I was thirteen. It can start with you today.
Do your research! Do it again! Learn what different outlook charting can do
for your trading plan. I have given ideas of what my criteria is in trading
certain situations so that an understanding of where I am coming from shows up.
Vary your data times. Use fifteen minutes, half hour, half day, first hour and
other time frames.
I am giving you a gift here and someday it will hit you. Just don't take too
long to see what is behind all three doors. I still want to point out that we
will see different outlook charts as the years go by and they will get better
and better. There will be a day when they are followed closely enough that they
no longer have the same value.
In trading you need to change the odds to your favor. By using rules one and
two you are moving in the right direction. By using your own mind, you are
doing what that computer programmer did many years ago. You are looking at a
different view. An artist will view his subject material from all angles.
ALS - Aren't you making it a little dangerous by telling traders to go find
your own plan and make your own charting system?
POP - I believe I am only making it a little more difficult in showing that
trading is complicated when it comes to getting the edge in trading. I don't
expect them to take entry and exit signals, which they devise without using
rules one for protection and rule two for enforcement of their new knowledge.
I believe in the small trader! I know what the potential is because I know
every trader started out as a small trader. Not one big trader started just
big. You must start. There is no better place to start than at the start line.
Only then can you say you went the entire course.
I want to impress upon you the importance of my belief in the small trader.
I believe if someone important can have faith and expectations in those around
them, it will make a difference in their lives. A good mentor knows that their
guidance will grow up one day of those who benefit from their convictions of
This story I am going to tell you was told to me by a very brilliant mind. I
like the story better the way I like to tell it but will tell it the way it was
told to me.
One year a math teacher in the geometry class had more students that usual.
Thirty-eight students were just to many to have the time to give one on one
guidance as required. Not only were there too many students in this particular
class but the teacher had more bad students than usual.
One particular student had never gotten grades above D's in his entire
school years. His name was Robbie, short from Robert. Robbie was the class
clown and had been his entire life because that is what the other students
expected of him. He had no interest in school and would brag that he would quit
school at the age of sixteen in a few short months.
The teacher had three Robert's in his class. Rob, Robbie and Robert. It was
pretty easy for the teacher after two weeks to keep the Robert's clear, as the
one who went by Robert was the top student in math.
Five weeks into the school year the first PTA meeting was coming up. The
teacher told each of the students to have their parents come to the PTA
meeting. That night only about a third of the parents showed up.
The teacher knew by how well the students were doing just which parents
would most likely show up at the meeting. The teacher took three to five
minutes with each set of parents to chat and find out a little about them.
The last parents were a little backwards and shy but the teacher shook their
hands and made the feel at ease. The teacher never got an answer when they were
asked their name so the answer was never known. The parents asked the teacher
"How is my Robert doing in class?"
The teacher thought and then answered "I have never had such a good
student in my class who takes so much interest and is a delight to have as an
example to my other students. Why your son is a living example of those who
will be leaders in our future.
It's just wonderful to know that in our lifetime we will see youngsters like
Robert grow up to make us all proud to have known him!"
The parents of Robert stood a little taller and smiled as they left the PTA
meeting that night.
Over the next three months going into the end of the first semester the
teacher noticed his students doing better than he had expected up to this
point. Trying to comprehend how his teaching had improved and what he had done
differently, the teacher spent more time trying to improve. At the end of the
school year, the teacher was in his own glory as no student had failed.
Not even the class clown Robbie. In fact Robbie had gotten all his
assignments done, taken a math scholarship exam and finished at the top score
nation wide. He had won a math scholarship as a sophomore. The teacher was
really proud to have taught so well.
The last day of class, Robbie waited until everyone had left and then headed
to the teacher's desk to talk. Robbie held out his had and said, "My
Mother told me what you said about me! I have never had anyone ever want me in
their class before or even cared if I learned. Thank you for giving me insight
into my life!"
The teacher began to cry as all the efforts to improve as a teacher
reflected back to the PTA meeting at the beginning the year. You see the
teacher thought when asked by parents how Robert was doing it was Robert's
parents and not Robbie's parents.
The teacher had made the biggest mistake of his life at that PTA meeting by
assuming he was talking about the right Robert. Not only was it the biggest
mistake but it was the best mistake of his life.
Can you imagine a grown adult crying? Isn't it refreshing to know we as
adults can learn from youngsters and it's ok for us to cry! At one time or
another in life we see a flash of light in thought looking back and realize
what we have just been given.
ALS - Pretty touching. You say you like to tell it differently?
POP - I like to substitute Robbie's name and instead use "a brilliant
You must understand that somewhere as a trader the light must come on for
you. There will be a point that the biggest mistake of your trading career will
be the best mistake you have ever made.
I personally want that student to come to me and say "Phantom, no one
has ever wanted me in their class before or even cared whether I learned about
trading. Thank you for giving me insight into correct trading."
I do care and I have only one thing left I wish to become. A better teacher!
ALS - How do we go on from here? I think your pep talk has caught me by
surprise. I don't know what to ask right now.
POP - I'll go over point and figure charting next. Go and enjoy a walk to
the top of your hill with your wife.</>
ALS - Ok, I would like to reflect upon what you have just given as insight.
Not just for the book but I also want to reflect for my own personal evaluation
right now. Thanks
The next interview:
ALS - On point and figure charting one question I see often is what size to
make the boxes?
POP - The fact of P & F charting is that the smaller you make the boxes
and retrace criteria, the closer you will see the market characteristics and
order flow. To learn the nature of trading and each market at first I suggest
the smaller box sizes. Keep in mind for the retrace that it must have some
significance beyond a normal bid and offer slippage.
Each market can be a percentage of daily-expected moves. I would say that as
an example in soybeans that if the daily range is usually 9 cents, I would use
a 1 by 3 box. Each box is one cent and each significant retrace has to be at
least 3 cents. This pretty well says to take ten percent of the daily-expected
move as the box size and thirty percent of the daily move as retrace
As time goes by you will want to extend the sizes to larger sizes. You may
even keep multiple P & F charts to compare. Today computers can do this for
you if you are set up for it. It is important to realize that at one time or
another each trader will try and improve his trading office.
Is it good to improve your data before your success or after your success?
The answer is a catch 22 as you will improve your trading as you improve your
understanding of how markets work. Most traders do not want to extend the costs
at first due to limited funds.
What really can you do with your data if it is based on someone else's
criteria and information? You can only be a derivative trader of that
I am not going into how to specifically use P & F charts but many good
books on the subject will be a good library add for you. Learn the highlights
of support lines, resistance lines, three wave recognition and breakouts. You
will be able to see what the trade does each day within the market parameters.
This is important to see first hand and P & F charts are the perfect way to
You are better off if you do your own charting rather than using a computer
until you understand and see what important data is available on these type
charts. I also suggest that if you had to use only one chart it would be a
point and figure chart.
I don't mean to be weak on giving knowledge on charting but it is critical
that each trader come up with his own thoughts and ideas. For someone to give
you their thoughts just limits a trader's horizon of what is possible for them.
Do your own homework and decide what your charting shows.
On some of my programs on charting and signal criteria, I narrow it down to
inputs of importance. I could have as many as 64 inputs. I can weight each one
according to how important they are or I can have them in one of two states
only. Some of my criteria input is qualified by going through several doors
In other words if the criteria is met, that input must go through the next
set of criteria. It sort of ends up like an eye examination as you expect one
total answer in the end.
Charts and criteria are nothing more than the best set of eye glasses at the
end of the examination. You will wear those glasses after your exam. Same in
trading, you will use that data after your criteria is set.
Why argue with it? Many traders are always making exception. For example the
last time they used their criteria signal they lost money. They won't make the
next trade. The big one! If you lost money last time and aren't happy with the
signals you must go back over your program or criteria and reintroduce the
correct data that you expect to be required.
If at any time data is excluded which you require, your signals are useless.
Get the total picture on your plan and not just the pieces. Have a definite
signal and not a maybe signal.
There are times when nothing you do seems to work. When things continue to
go bad, I can say to you that you have violated another known fact. Diversity
helps reduce risk but only in the long term. In the short run we are talking
about luck, both good and bad. Believe me that if bad luck comes first you are
finished if you only depend on luck.
Charts are not an answer alone and have no use if your trades can't be
executed promptly. Anytime you can't as a trader do what is required to get the
position on, you will take the scales the wrong way. Remember you must be in
before you can get a correct move.
ALS - What kinds of charts do pit traders use mostly in trading?
POP - I have seen P & F charts bar charts with half hour, ten minute,
down to 1 minute used. I have also seen several of the new popular volume based
price charts as well as different color charts with indications of momentum
along with price.
ALS - What type do you use when you are in the pits?
POP - I never use anything but mental graphs when in the pit. The mental
charts are more point and figure charts. They are really easier as I am looking
for the third wave to position against the public on the third wave in my
desired direction. It works for add on positions well and keeps my entry
cleaner for protection requirements.
I don't go to the pit often anymore unless it is to be an exceptional day
indicated by my signals. I will go to the pits when I have an unusually
downward bias indicated, as gravity seems faster to me in those markets, which
reverse to the downside.
Most of my charts are kept on computers but that doesn't mean the computer
gives me my signals during the day. I like to have them before the day begins.
It is more mechanical that way and not ever emotional that way. That is an
important point in trading to remove those human elements as best as possible.
Only then can you truly be objective. Look at it this way. When it is no longer
your money, it is easy to do the right thing. But when it isn't your money you
can also be careless.
Just follow the rules and your signals without exception. If they don't work
in the long run, you are not using the correct system or you're not using my
two rules first and foremost.
ALS - You are still going to have arguments about your two rules as to
whether they work for all traders!
POP - We wouldn't have markets if everyone agreed on a plan. We would have
nothing but limit day moves everyday. We really need various ideas and
concepts. I just want one, which will work over time and keep my drawdown
smaller than when I first started.
I must have a rule which allows me my freedom to know regardless of what
happens today, I will be here tomorrow and tomorrow and next year and next
decade if I wish to be.
Don't ever think that no one ever cared whether you learned anything in
trading. I do care and I insist you take full responsibility to learn the
correct knowledge. That knowledge must be not only criteria for trading but
also the correct method of changing your behavior to that which are required to
be successful in the long run.
Your trading career should be a long-term expectation on your part. A short
time frame is not acceptable in trading. I am not saying that short-term trades
are not acceptable but that you must look beyond one day in your trading
Some of the best traders started out broke! And then they got more broke.
" I believe if someone important can have faith and
expectations in those around them, it will make a difference in their lives.
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