Cover of Pink’s Book

1. THE WHOLE NEW MIND: WHY RIGHT BRAINERS WILL RULE THE FUTURE (Illustrating powerful techniques for the 21st Century Trader)byProfessor Hank Pruden, Ph.DGolden Gate University

2. Cover of Pink’s Book

3. SYSTEMS BUILDING IN THE NEW AGE OF HIGH CONCEPT AND HIGH TOUCH To further deepen your understanding of the nature of trading challenges that you will face in this new century and to equip you with additional tools to deal with them, I wish to expose you to the ground-breaking thinking found in Daniel H. Pink’s A Whole New Mind: Why Right Brainers Will Rule the Future. The following introduction to Pink reveals his “high-concept, high-touch” attribute, one that the trader should cultivate for a competitive edge in the twenty-first century. (T)he conceptual Age also demands the ability to grasp the relationships between relationships. This meta-ability goes by many names-systems thinking, gestalt thinking, holistic thinking. I prefer to think of it as simply seeing the big picture. Seeing the big picture is fast becoming a killer app in business. While knowledge workers of the past typically performed piecemeal assignments and spent their days tending their own patch of a larger garden, such work is now moving overseas or being reduced to instructions in powerful software. As result, what has become more valuable is what fast computers and low-paid overseas specialists cannot do nearly as well: integrating and imagining how the pieces fit together. This has become evident among entrepreneurs and other successful businesspeople.

4. WHOLE MIND Analysis Package Visual: “Relationships Of relationship” Or pattern recognition - - - R- MODE • Analytical/Digital • Checklist • Weighting • Decision threshold • - - - • L - MODE

6. Accumulation Schematic

7. Glossary of Terms for Accumulation Schematic PS- preliminary support, where substantial buying begins to provide pronounced support after a prolonged down-move. Volume and spread widen and provide a signal that the down-move maybe approaching its end. SC- selling climax, the point at which widening spread and selling pressure usually climaxes and heavy or panicky selling by the public is being absorbed by larger professional interests at prices near a bottom AR- automatic rally, where selling pressure has been pretty much exhausted. A wave of buying can now easily push up process, which is further fueled by short covering. The high of this rally will help define the top of the trading range. ST-secondary test, revisiting the area of the selling climax to test the supply/demand balance at these price levels. If a bottom is to be confirmed, significant supply should not resurface, and volume and price spread should be significantly diminished as the market approaches support in the area of SC.

8. Glossary of Terms for Accumulation Schematic The “creek”, referring to the analogy described elsewhere is Chapter 6, is a wavy line of resistance drawn loosely across rally peaks within the trading range. There are, of course, minor lines of resistance and more significant ones that will have to be crossed before the market’s journey can continue onward and upward. “Jump” – continuing the creek analogy, the point at which price jumps through the resistance line; a good sign if done on increasing spread and volume. SOS- sign of strength, an advance on increasing spread and volume. LPS- last point of support, the ending point of a reaction or pullback at which support that was formerly resistance, on diminished spread and volume after an SOS. This is a good place to initiate long positions or to add to profitable ones.

9. TABLE 7.1 Wyckoff Buying Tests: Nine Classic Tests for Accumulation

11. S&P 500

13. THE LIFE CYCLE MODEL OF CROWD BEHAVIOR Schematics: Bell-shaped and S-shaped curves Checklists: Three-deep at every position • Technical Market Analysis Mix: • Price • Volume • Sentiment • Time FIGURE 1.7 A Behavioral Finance System

14. FIGURE 2: ADOPTER CATEGORIZATION FIGURE 3: THE PRUDEN MODEL

15. Curves, S – Shaped and Bell- Shaped The cumulative nature of the herd instinct is reflected in the S-shaped curve of the life cycle model (Figure 3.1), while the counterpart bell-shaped curve shows how groups of market participants are positioned and interrelated, ranging from the early smart money to the “odd-lotters”, those who enter the market last (Figure 3.2). Together, the two curves form a life cycle model that is a powerful integrator of indicators to gauge technical market conditions and to predict market behavior. In fact, the life cycle concept is so powerful that economic theorist Theodore Modis argues that such models can forecast the rise and fall of almost anything. The forgoing adoption/diffusion life cycle model, which is widely used in social science and in marketing research, fits the stock market with ease. Using this model, Figure 3. shows how the four major parameters of technical analysis-price, volume, time and sentiment- are interrelated.

16. The Pruden Model

17. IndicatorsThree deep at every positionFour elements: Price, volume, time, and sentimentThree levels of analysis, or three units of analysis for every element • This form shows each element broken down into three levels or units of analysis. Entries under “Indicators” and • “Weighting” depend on the market and time frame being analyzed. • Indicators are chosen by the analyst. Depending on the time frame used and the market studied, each technician can systematically select an array of specific technical indicators to represent each element of the model.

18. IndicatorsThree deep at every positionFour elements: Price, volume, time, and sentimentThree levels of analysis, or three units of analysis for every element • Recommended Indicators • Momentum: Trade Navigators’ Momentum Oscillator • Extent: Wyckoff Point and Figure Chart Count • Form: Elliott Wave Principle Counts on hourly charts

20. IndicatorsThree deep at every positionFour elements: Price, volume, time, and sentimentThree levels of analysis, or three units of analysis for every element • Suggested Indicators from Trade Manual: • Bars Since, p. 14 • Day of the month p.19 • Trade Navigator’s Trade Sense Manual: • Seasonal, p.66 • Next Bar Trading Day of the Month, p. 57 • Next Bar Trading Days Left, p. 59

25. IndicatorsThree deep at every positionFour elements: Price, volume, time, and sentimentThree levels of analysis, or three units of analysis for every element • Recommended Indicators from Trade Navigator Manual: • Volume, p.101 • Chaikin Oscillator, p. 19 • OBV, P.65

27. IndicatorsThree deep at every positionFour elements: Price, volume, time, and sentimentThree levels of analysis, or three units of analysis for every element • Recommended Indicators from Trade Navigator Manual: • Genesis Sentiment, p. 35-36 • Larry Williams Sentiment, p. 45 • Commitment of Trader, p 24-27

30. A TREE OF INDICATORS A tree of indicators concept comes into play during the building and testing of complex Models. With this notion, rather than simply relying on price trend and sentiment, the analyst can add together indicators such as price pattern, Elliott Wave count, point-and figure proportion, on balance and total volume, and put/call ratio to fully exploit the technical information possibilities of the model. Using the adoption/diffusion model, analysts can make sense of how these various parameters are tied together. Depending on the trader-analyst’s time horizon and his confidence level with certain indicators, he can select, judiciously, from an arsenal of specific technical indicators. If, for example, he is an intermediate-term options or futures trader, then he might wish to Examine the price paratum, an hourly Dow Jones chart to Count Elliott Waves, and a point-and-figure chart of the Dow Jones Industrial Average to measure the potential extent of the moves. These price indicators can be seen positioned along the S-shaped curve.

31. A TREE OF INDICATORS, continued With respect to volume, the analyst might include total daily New York Stock Exchange (NYSE) volume, a measure of overall upside versus downside volume, and perhaps also a further refinement of an on-balance volume study of the 30 stocks in the DJIA. Volume is appropriately viewed on the bell-shaped curve under the S-shaped curve of price. Sentiment measures both the opinion and the behavior of various market participants. Sentiment indicators of opinion are captured by the feedback loop (see Figure 3.3), and behavior fits into the bell-shaped adoption curve. Here, the analyst might choose to evaluate market opinion by using the Investors Intelligence ratio of bulls to bears (www.investorsintelligence.com). Moreover, he might evaluate the prevailing public sentiment with the headlines and leading stories from newspapers and magazines. He can appraise speculative behavior by calculating option put/call, open interest, and volume ratios.

32. Finally, the intermediate-term investor might utilize the fourth major parameter, time. This might be achieved by analyzing a 10- to 13- week trough-to-trough cycle, the duration spent in a given up-or-downtrend, and the significance of seasonal influences. Framing the indicators into the model shown in Figure 3.3 empowers the trader to better judge when the odds are optimal to buy an upside breakout. The combined picture of price-volume-sentiment-time appears different in the lower-left quadrant (accumulation) of the model than in the upper right (distribution). One would want to buy every high volume upside breakout in the former case, but not when the latter circumstances appear to prevail.

33. TRADE NAVIGATOR CAN HELP The model also gives trader grounds for establishing numerical benchmarks for entry and exit signals. These benchmarks can come from back-testing and real-time experience. Certain indicators might be given more weight, and the threshold levels between bullish, very bullish, bearish and very bearish will depend on the analyst’s choice of indicators, beliefs about the market, and experience. The adoption/diffusion life cycle model allows the technical trader to use the rich array of indicators available in software packages, yet at the same time avoid being overwhelmed by data. As shown in Figure 3.5, the small S-shaped life cycle curves build into larger ones. Thus, the model provides a systematic way to view and interrelate the daily, short term, intermediate, and long-term trends of a market. A general observation is that the field of technical trading has become too competitive for a trader to rely solely on a simple system of one or two indicators. Trading in the markets is rapidly approaching the levels of more complex yet intelligible to help you gain that extra edge. Behavioral finance models can help you frame your technical information to gain that advantage.

35. LEAPFROG YOUR COMPETITORS The world of technical analysis for traders has become overcrowded with number crunching that is unguided by conceptual schemes in tune with the true nature of the market. Too often, this results in a muscular but mindless mechanical trading system. Relying on this “information age” path will send the trader’s job to a computer-savvy 20 year-old in Sri Lanka. Leapfrog your competition and capture a first-mover advantage by getting the conceptual edge by trading with your whole mind, as explored in Daniel Pink’s groundbreaking book, A whole New Mind: Why Right-Brainers Will Rule the Future (New York: Riverhead Trade, 2006). Tom Peters, author of In Search Of Excellence (New York: Collins, 2004) proclaims that “(Daniel H. Pink’s) book is a miracle. Completely original and profound.” According to Pink, we are on the cusp of the Conceptual Age, an age that champions “high concept” and “high touch.” Success in this new age will depend on your “capacity to detect patterns and opportunities, to create artistic and emotional beauty, to craft satisfying narrative, and to combine seemingly unrelated ideas into something new”’. High touch empowers you to get a feel for the market.

36. While trading for my account, I used high-concept, high-touch techniques long before they were labeled as such by Pink. Later, I wrote articles about this concept, assembled a book, and designed a course to teach others how to apply these techniques to the market. In all these avenues, my work echoed and incorporated the concepts and empathies Pink declares are foundations for success in the twenty-first century. These high-touch gems are available to the trader who studies The Three Skills of Top Trading. You will find high-concept pattern recognition and synthesis tasks and the skills with which to execute them throughout this book. Part One illustrates high concept for the trader with a behavioral finance model, the Life Cycle of Crowd Behavior. Then Part Two continues to develop your high-concept aptitude with discretionary trading and pattern recognition using the Wyckoff method of technical market analysis. Finally, Part Three provides opportunities to deepen your understanding of high touch and develop your aptitude with the help of the Ten Tasks of Top Trading and right-brained thinking with the help of Chart Reading in the R-Mode. With the sound logic of modern behavioral finance and the classic pattern recognition skills of technical analysis, the trader and the market analyst will find pathways to trading success in the twenty-first century.