PPS Trading System by Curtis Arnold

[motorway]

Motorway,
I have been trading these patterns since 1995. I have spent countless hours, and I mean many 1000's, trying to filter patterns. My extensive research suggests its all random, but random makes money consistently. I will dismiss the supply/demand logic (because I have tested it) and its no better than anything else. I freely admit, my imagination and interpretation is limited, but I would be happy to prove you right. You have put forward a broad generalization against my 15-years of trading. I am more than happy for you to cure my randomness (although there is nothing wrong with randomness) to increase my P&L.

How about I put forward all my patterns and you tell me which one's to take basis your supply/demand logic. After 100 samples we'll compare notes?

What are we disagreeing about?

I see two patterns, price oscillations can narrow or expand

They taken without any other context can be continuation, reversal or exhaustion........As you say random

To get one of those two patterns... There must be some change in demand and supply

eg some demand must be met to stop a down move

a good example in the thread is the PBG example

But this volume only produces a sideways move..

So the volume temporarily stops, but does not start

I don't see there is a significant disagreement

Price narrows or expands ( two basic patterns )

without other context, what results is random

I see it as important to try and keep visualizing
demand and supply dynamics and to keep asking what is happening to demand and supply

You have put forward a broad generalization against my 15-years of trading.

What was that? Are you saying that we need 1000 names for the shapes of dampening and expanding price patterns ?

I see basic Two patterns
They can be rising or falling
in uptrend's or downtrends etc

I see them as reflecting temporary changes in demand and supply dynamics.

and I did not see my post as any comment on your 15 years of trading.

It was a comment on patterns.

MRC & Co started an open thread didn't he?

motorway

 

[RichKid]

But that is the great secret and is usually only available to those willing to pay over $5,000.

Kauri makes a valid point which I feel differentiates PPS to standard TA. PPS makes a very defined pattern, as do Elliottians with their triangles. Patterns can morph from one to another. A triangle can morph into a flag for example.

That's a great point about points of differentiation, I found that important (and initially irksome) in comparing traditional triangles to EW.

In terms of numbering the internal swings of triangles there seem to be different ways to do it. PPS has very specific criteria for defining a triangle and positioning stops and entries.

For example, we may number the first swing against the prevailing trend as number one. Eitherway, we all know how to draw the geometric patterns, having consistent rules is the key.

In EW a wave 2 can never be a triangle, despite Elliott toying with the idea in his early work. W4 is expected to be a triangle or similar sideways consolidation, hence a zig zag is unexpected. I have no stats for these.

So we must be internally consistent with the theory rather than just mixing and matching different methods without understanding the reason why certain rules exist in particular systems.

Nick and motorway, let's go easy on each other please and stay on topic, it's about the PPS system book. Robust discussion is fine, but please demonstrate the relevance of the posts to the topic for the benefit of less experienced traders if you could please. Or you can start a different thread on risk/reward, volume, patterns and randomness. Thanks gents!

 

[Nick Radge]

My apologies Motorway. It just seemed a long way to explain a simple concept.

People who over read a market situation are often looking for a way to miss rather than make a successful trade.

Its more important to be decisive about a trade than correct.

If you understand the concept of skewing the numbers then its then just a matter of taking a decisive glance at the chart to know the trade.

 

[MichaelD]

I have been trading these patterns since 1995. I have spent countless hours, and I mean many 1000's, trying to filter patterns. My extensive research suggests its all random, but random makes money consistently.

Anyone see what I see in PEM?

Shhh - this fact could destroy one of the few profitable ways of making money from the market for those that can't trade.

I'll nibble at PEM. It seems to have finally stopped going down. That's all I see.

 

[CFD]

Nick and motorway, ~~ Or you can start a different thread on risk/reward, volume, patterns and randomness. Thanks gents!

Now these two admired and respected guys on randomness - that would be interesting. If anyone has the book Fooled by Randomness, I would be interested in your thoughts.

 

[IFocus]

I have been trading these patterns since 1995. I have spent countless hours, and I mean many 1000's, trying to filter patterns. My extensive research suggests its all random, but random makes money consistently.

Nick I have found my results dramatically skewed by market conditions when trading patterns or more particularly continuation patterns.

I know you don't filter using sectors and understand your reasoning so with filtering based on market conditions be classed as a random situation.

Is the random part being more to do with the judgment of market conditions or the coming market conditions or cycles?

Or is it all random and the pattern is just permission to enter a trend?

 

[motorway]

It just seemed a long way to explain a simple concept.

It depends on whether you want to get past the basic question of what

and attempt to address how and why..

eg

I'll nibble at PEM. It seems to have finally stopped going down. That's all I see.

so do we buy it sell it or do nothing ?

It seems to have finally stopped going down.

How did it do that... Is there anything we can see that would tell us something of the how ?

Did the flow of supply slow ?
Did urgent demand emerge ?

If you use a random number generator as an entry mechanism

Maybe those questions do not matter
If you are trying to recognize eg accumulation
they do.

I will dismiss the supply/demand logic (because I have tested it)

whether urgent demand emerges or supply holds back
in itself is not what is effective ...
It is more what is the then response that matters..

Supply can temporarily dry up after a large fall
But that does not mean that I would designate
the dampening price pattern as a buy..

There is always to some extent a flow of supply
But there is no flow of demand in the same sense.

its then just a matter of taking a decisive glance at the chart to know the trade.

Some are at various stages of the journey .
Some might never get or even conceive of asking how
let alone why.

But if they do they might want to do more ( at least at first ) just glance at a chart...

I have been trading these patterns since 1995. I have spent countless hours, and I mean many 1000's, trying to filter patterns.

Something that dissolves all the appearances of price patterns
( leaves behind the 1000 names )

is P&F....You are left with trend and reversal... flow and congestion

dampening and expanding...



motorway

 

[tech/a]

M/W

All very good.We can analyse our brains out but unless one knows how best to apply that analysis and manage it all we are doing is circular hypothesising.

Trading consistently profitably goes way beyond asking why and finding the how.
Even Wyckoff/VSA/P&F analysis or a combination of all wont guarentee that if read correctly (At the time) a profitable trade will follow.

The real how comes from correct application combined with sound trade management.

You can be the best analyst in the world in whatever discipline you choose and still be god awful at the art of trading.

 

[MichaelD]

so do we buy it sell it or do nothing ?

How did it do that... Is there anything we can see that would tell us something of the how ?

Did the flow of supply slow ?
Did urgent demand emerge ?

The price of PEM is going nowhere. Not up. Not down.

Ultimately I don't know why. Ultimately I don't care why.

I can speculate for the purposes of entertainment that there is accumulation going on at around the 1.00 mark (so the accumulator will not let the price rise until they have finished accumulating), but it is my belief that pontificating on the reasons for the price going nowhere or speculating on accumulation/distribution does not improve my expectancy.

Put simply, at this time I would not enter a trade in PEM in either direction. If I were to bet on where PEM is going for entertainment, I'd bet on a breakout in due course.

 

[RichKid]

Guys, please make your posts relevant to the topic or some of the last few posts will be sheared off into a new thread- you can continue your discussion there, it's too good to ignore.

All this talk of risk and randomness and application of theory is fine but please compare it to Curtis Arnold's view of risk management and pattern trading to pay some respect to the thread title. We are bound to see some good ideas emerge if we spend time on this comparison in a disciplined manner.

If you just want simple pattern recognition examples there are threads of that nature here on ASF already, even Nick has some examples of trading with volume and price patterns somewhere on ASF- use our magic search tool.

 

[motorway]

I would do nothing too.

Ultimately I don't know why.

Because demand is not overcoming supply.

If I were to bet on where PEM is going for entertainment, I'd bet on a breakout in due course.

I wouldn't.. at best I could say that there is adjustment to a price level
( a market at the price has emerged )

But then I would not bet for entertainment

This is how I would draw the trend lines
They reveal two patterns

In first I would say supply withdrew .

That is what made the pattern
But the flow of supply quickly resumed
and overcame the demand

( that was the response the pattern broke down )


motorway

 

[RichKid]

Nice chart MW, thx:

fwiw I see a solid downtrend in place with strong momentum, large spaces between the swing highs/lows. Dropping like a rock.

A minor double top appeared in the downtrend which tested resistance at $2, the response was to keep going down, still too much supply.

A small triangle or flag (depends on how it pans out) appears in this bear trend most recently as a possible continuation pattern with volume dropping typically (eg buyers retreating to lower levels). BUT I also note a reduction in the angle of descent as shown by the lower trend line- signs of a loss of momentum? but that doesn't mean the trend is over. I can't see any reason to trade this anyway but short once the lower boundary of the pattern is broken, simple TA?

I will guess that Arnold would have recommended this setup- once his basic pattern recognition criteria are met and the trade is triggered it's just a matter of money and trade management. If you're wrong you're stopped out, if not you can protect your profits.

 

[It's Snake Pliskin]

Now these two admired and respected guys on randomness - that would be interesting. If anyone has the book Fooled by Randomness, I would be interested in your thoughts.

Mr CFD,

I enjoyed that book immensely. He seems a rare breed indeed.

But back to the book inquestion as has been stipulated we talk about, I haven't read it but may just out of curiosity. I seem to pickup one little thing even from rubbish books. I am curious why it hasn't been republished for a while now. Any thoughts out there?

 

[Nick Radge]

Snake,
Arnold got into some trouble by the authorities for false advertising. I think he was banned from the industry and therefore suggest the publisher would deem a republish as a waste of time. The book is well worth the read regardless of his dubious dealing. If you want a real laugh, get the video.

MichaelD,
How can you look at 12-months of price data and say price is going nowhere?

Focus,

Or is it all random and the pattern is just permission to enter a trend

Exactly correct. It is nothing more than permission to enter a trend. A comfort factor. Its a pattern that replicates. Its a pattern that is common. Its a pattern that has defined right/wrong boundaries. Its a pattern that offers a low risk trade. Without comfort you will not be able to participate and you will never have a foundation from which to work from.

My comment earlier on was about being decisive. Again, using a golfing analogy (seeing as the Masters in on), we don't see Tiger analyze each and every shot to the nth degree. He's done the hard work on the range. When he plays, he walks up to the ball, looks at the lie, the distance, the breeze, sets up and hits. That's it.

Same with trading.

We've done the hard work prior to placing a trade by doing backtesting and appreciating risk/reward, position sizing and all the other aspects required to achieve positive expectancy.

To the trade itself.

We have a severe downtrend.
We have a congestion pattern.
We expect a break to the downside.

Place the trade.
Manage the outcome.

 

[wayneL]

Exactly correct. It is nothing more than permission to enter a trend. A comfort factor. Its a pattern that replicates. Its a pattern that is common. Its a pattern that has defined right/wrong boundaries. Its a pattern that offers a low risk trade. Without comfort you will be able to participate and you will never have a foundation from which to work from.

I like what you said there.

This is a point I've tried to talk to people about on the subject of TA in general. Usually I'm having trouble pronouncing my own name :alcohol: by the point people start talking about trading. I'll have to memorize that.

 

[MichaelD]

How can you look at 12-months of price data and say price is going nowhere?

I should have expanded that by saying it is going nowhere at the moment after a 12 month downtrend. I could have called it possibly forming a Weinstein Stage I base after a Stage IV decline, ready for a breakout to the upside, but there are many names and interpretations for this same pattern.

The $1,000,000 question is - what happens next.

We have a severe downtrend.
We have a congestion pattern.
We expect a break to the downside.

Place the trade.
Manage the outcome.

From the above - do you mean open the position now in anticipation of continuation of a downtrend or do you mean await confirmation of the setup by a breakdown and then enter?

 

[Timmy]

This pattern certainly has no edge as it runs at about a 40% win rate, has done for years, but it still makes good money.

Bringing up a post from earlier on, and a question please,*

All else being equal, if a pattern has a 40% win rate wouldn't counter-trading it give a 60% win rate? All else being equal would this not improve expectancy?







*Warning: question may be stupid.

 

[Sean K]

Bringing up a post from earlier on, and a question please,*

*Warning: question may be stupid.

whaahahahahaha!

No idea myself, but appreciate the approach! Cheers!

 

[tech/a]

I'm pretty sure Nick would /will say trade the pattern.
Everything else has no bearing on "This" particular method of trading.

Set the Buy after the break--not before then manage the trade.
Not with other analysis but with pure price action.

How does Arnold work the trade?

 

[Nick Radge]

All else being equal, if a pattern has a 40% win rate wouldn't counter-trading it give a 60% win rate? All else being equal would this not improve expectancy?

All else aren't equal though. Expectancy has more significant inputs than win rate. Counter trend trading changes one of those inputs significantly enough to make that connection mute.

As for trading the patterns, you simply allow price to tell you what its going to do. I highly recommend reading the book.