PPS Trading System by Curtis Arnold

bunyip said:

Yep, Forex seems to be tailor made for technical analysis. And it puts in the sort of trends that traders dream about.
Not only that, but the sheer size of the Forex market makes it very difficult to manipulate.

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I never understand that rubbish. It just seems like another bucket shop line to pull in the naive punters.

I mean all markets are moved when buyers or sellers become imbalanced. The trick is to be on the right side of that. Weather the move is "manipulation" or not, what does it matter?

Trembling Hand said:

I never understand that rubbish. It just seems like another bucket shop line to pull in the naive punters.

I mean all markets are moved when buyers or sellers become imbalanced. The trick is to be on the right side of that. Weather the move is "manipulation" or not, what does it matter?

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If you don't understand it then perhaps you're being premature in labelling it as rubbish.
An ex-broker once told me about a practice that goes on in the stockmarket. A large institutional client wants to quit its holding in a stock, but doesn't like the current price. So it asks its broker to plug the stock. The broker slaps a buy recommendation on the stock and sends it to thousands of clients via newsletter or daily market alert or whatever. Many of them pile into the stock and push the price up. The institutional client promptly bails out, causing the stock to suddenly head south.
There was a recent example in a US stock that was heading downhill, then jumped 13% in one day when a broking firm put a buy recommendation on it.
The jump was promptly followed by a fall that wiped out the gain in just two days.

I can see all sorts of ways to manipulate stock prices. The stockmarket is made up of thousands of individual companies. Good or bad news about a company, whether true or fabricated, can cause the stock price of that company to make wild and unexpected directional changes.
The different structure of the Forex market gives it a degree of immunity from this sort of thing.

For every buyer there's a seller. The imbalance you talk of is an imbalance between supply and demand, not between buyers and sellers. Supply/demand imbalance causes price movement in any market. And the trick is to be on the right side of that imbalance.
Some markets tend to remain in a state of imbalance for extended periods, resulting in sustained trends in one direction. It's pretty easy for a trader to get on the right side of the imbalance in this situation, and stay there for the duration of the trend. These are the easiest markets to trade, and the Forex market is one of them.
Some markets, such as individual stocks, tend to switch balance far more often due to the large number of factors that can alter public perception about a stock.
Sometimes that public perception can be deliberately manipulated.
But whether manipulated or not, it's a fact that supply/demand imbalance in stocks tends to shift around more often than it does in currencies. The more shifts you get in supply/demand imbalance, the choppier the market and the harder it is to trade.

bunyip said:

For every buyer there's a seller. The imbalance you talk of is an imbalance between supply and demand, not between buyers and sellers. Supply/demand imbalance causes price movement in any market. And the trick is to be on the right side of that imbalance.

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Thanks for the info Bunyip.

What do you mean by this part? Sellers and buyers are supply and demand, right?

I think that is THs point, that even if the broker puts up a buy recommendation, you can still spot the large institution offloading into that demand through VSA and therefore, be on the right side of the imbalance.

I can see your point though on why FOREX runs better than stocks, and therefore, better for breakout plays such as these. Though, perhaps stocks or index futures are better for fade plays? Pivots/support/resistance, with a stop and reversal of the fade on the other side of the fade area shoiuld the set-up fail.

bunyip said:

The more shifts you get in supply/demand imbalance, the choppier the market and the harder it is to trade.

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LOL

Well there you go. One man's trash is another man's treasure.

MRC & Co said:

Thanks for the info Bunyip.

What do you mean by this part? Sellers and buyers are supply and demand, right?

I think that is THs point, that even if the broker puts up a buy recommendation, you can still spot the large institution offloading into that demand through VSA and therefore, be on the right side of the imbalance.

I can see your point though on why FOREX runs better than stocks, and therefore, better for breakout plays such as these. Though, perhaps stocks or index futures are better for fade plays? Pivots/support/resistance, with a stop and reversal of the fade on the other side of the fade area shoiuld the set-up fail.

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No, you can't necessarily be on the right side of the imbalance. You may very well find yourself on the wrong side if you're short in a stock that suddenly takes a hefty jump because a broker gives it a buy recommendation. Or because it was manipulated for any other reason. Chances are you'll be stopped out.
How about small cap stocks that might only trade a few thousand dollars worth a day? These stocks are notoriously choppy and easily manipulated. Try getting yourself on the right side of the supply/demand imbalance, when that imbalance swings wildly in a choppy stock. You can be on the right side today and the wrong side tomorrow.

Now compare this to the Forex market. No amount of ramping or rumour or fanciful reporting or corporate deception or missed earnings or attempted manipulation will have any effect on the massive currency markets. No silly little rumour, whether genuine or fabricated, is going to cause wild swings in currencies.
Therefore currencies tend to exhibit smoother trending characteristics and more predictable patterns than just about every other market, and as such, are one of the easiest markets for putting yourself on the right side of supply/demand imbalance, and keeping yourself there.
Which brings me back to the PPS system.....putting you on the right side of the imbalance is what PPS does very well. That's one of the reasons I find it to be a good and profitable system.

On the buyer/seller supply/demand issue.......Sellers are not sellers until they actually sell something. Buyers are buyers only when they buy something. Every time a stock changes hands, the transaction involves a buyer and a seller. The number of buyers and sellers is equal. The number of stocks bought and sold is equal by definition.
But supply and demand are never equal....there's always an imbalance, however small or large.
The buyers represent demand and the sellers represent supply. If there's a huge number of people wanting to buy a particular stock, but not many people willing to sell it, the wannabe buyers have to offer increasingly higher prices to entice sellers to do business.
Demand is greater than supply, therefore prices are pushed strongly upward.....an uptrend.

Sometimes supply is greater than demand....lots of people wanting to sell, but not many willing buyers. The sellers wishing to entice the buyers to do business with them have no choice but to accept increasingly lower prices. Hence a downtrend forms.

Put yourself on the right side of these trends - these supply/demand imbalances - and you have a good chance of a profitable trade IF the imbalance continues. It's a lot easier to do it in relatively stable markets like Forex that's large enough not to be easily moved by rumours or deception or manipulation.

As for fade plays......Each to his own...I don't use them and I don't know much about them. I've never found any reason to deviate from a trend following approach. And the easiest way to get aboard a trend is to trade continuation patterns.
If you can find a trend, (and you always can), you can find a potentially profitable trade. Rare is the trend that goes from start to finish without giving you at least a couple of good entry setups.
Look at any market.....the big money is in the big trends. I want to be where the big money is. How about you?

Ok, I see what you are saying about supply and demand and buyers and sellers. Basically the difference between the DOM and T&S.

I personally, think you need to add volume to PPS set-ups if your really to give yourself the best chance of being on the right side of imbalance (after all, this is what causes the imbalance).

I don't trade small caps. But a broker buy recommendation, followed by a large insitution offloading, will show up generally with a long tail or a tight spread on large volume. Both, an indication to exit your position. EOD, of course, always harder than intraday.

If you catch the big money exiting, then fade plays from resistance work. If you catch the big money entering, then you can fade a support. You don't just have to use it for trending systems. But each to his own. But if your trading intrday, a trend following system will make you nothing on choppy days........perhaps.

MRC & Co said:

Ok, I see what you are saying about supply and demand and buyers and sellers. Basically the difference between the DOM and T&S.

I personally, think you need to add volume to PPS set-ups if your really to give yourself the best chance of being on the right side of imbalance (after all, this is what causes the imbalance).

I don't trade small caps. But a broker buy recommendation, followed by a large insitution offloading, will show up generally with a long tail or a tight spread on large volume. Both, an indication to exit your position. EOD, of course, always harder than intraday.

If you catch the big money exiting, then fade plays from resistance work. If you catch the big money entering, then you can fade a support. You don't just have to use it for trending systems. But each to his own. But if your trading intrday, a trend following system will make you nothing on choppy days........perhaps.

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Intraday trading?.....Been there done that....life is too short!
My trading activities from daily charts take about 15 minutes a day - a long day would be half an hour......leaves me plenty of time to do have a lifestyle outside of trading.
But if you like intraday trading and you can make money from it...why not!

If you ever decide to have a crack at the Forex market you'll have to do without volume analysis.......no volume figures are available for Forex.

bunyip said:

If you ever decide to have a crack at the Forex market you'll have to do without volume analysis.......no volume figures are available for Forex.

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Only if you trade the Bucket shops.

FX volume is available for FUTs.

bunyip said:

Intraday trading?.....Been there done that....life is too short!
My trading activities from daily charts take about 15 minutes a day - a long day would be half an hour......leaves me plenty of time to do have a lifestyle outside of trading.
But if you like intraday trading and you can make money from it...why not!

If you ever decide to have a crack at the Forex market you'll have to do without volume analysis.......no volume figures are available for Forex.

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Hi Bunyip,

How do you screen for the setups by eye or software? I guess if you are just trading Forex scanning each pair could be done in 15 mins a little more difficult to do with say the ASX 200.

Trembling Hand said:

Only if you trade the Bucket shops.

FX volume is available for FUTs.

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LOL......Guess I'll just continue trading the 'bucket shops' then.......I'm doing OK.

bates said:

Hi Bunyip,

How do you screen for the setups by eye or software? I guess if you are just trading Forex scanning each pair could be done in 15 mins a little more difficult to do with say the ASX 200.

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Not 15 minutes for each pair - 15 minutes for ten pairs......that includes placing orders and adjusting stops on existing positions etc.
The actual eyeballing of 10 pairs to find the setups takes only five minutes or so. With a bit of practice you become so familiar with the setups that you can spot them in just a few seconds of looking at a chart.
Scanning for the setups would save me virtually no time at all.

For what it's worth.....
Here are a couple of extracts from the chapter on trend identification in Curtis Arnold's PPS Trading System book.
He refers to commodity trading but his comments are relevant to any market.

I cannot overstate the importance of the underlying trend in commodity trading. When asked for trading wisdom, the greatest legendary traders from Jesse Livermore through Richard Dennis, would simply reply: "The trend is your friend", or "Don't fight the tape".
And you were expecting something complex and profound? Could commodity trading really be that simple? The answer is yes. In my opinion you're half way home when you're trading is based on this simple yet profound truth.

The PPS system uses two Simple moving averages (SMA) to identify the trend.

Downtrend.....18 SMA falling, 40 SMA flat or falling.
Uptrend...18 SMA rising, 40 SMA flat or rising.

Here's another extract from the book...

We know the first tenet of successful trading: trade with the trend.
But what exactly is a trend? Because there are many ways to define a trend, there is no right answer. All that is important though, is that we choose one definition, and then trade accordingly. In other words, we never enter a trade unless, by our definition, a trend does exist.
Unlike trend lines, which can be subjectively drawn, moving averages are not only a simple way to define the trend, but offer the added benefit of being totally objective.

lesm said:

Hi snake,

There are two used copies available on Amazon.

Cheers.

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Thanks Lesm. I tried getting through Amazon Japan as they had it on their site but they couldn't get it for me

Mrc, I understand what you must be feeling.

Cheers..

Here is one I picked up last night (CHD.NYSE). According to Arnold these symmetrical triangles have an 86% chance of breaking with the trend. Here we have the 4-internal swing points, the two ma's pointing higher, at 52-week highs as well as very good volume traits. My experience is that declining volume during the pattern tends to lead to a breakout whereas expanding volume during the pattern tends to lead to a failure.







We'll follow this trade using the PPS method over the coming day and see what transpires...

This post may contain advice that has been prepared by Reef Capital Coaching ABN 24 092 309 978 (“RCC”) and is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

My experience is that declining volume during the pattern tends to lead to a breakout whereas expanding volume during the pattern tends to lead to a failure.

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Have you found that to be the case with both bullish and bearish patterns?

An update on the open CHD trade which stands in a small profit at the moment. PPS states that after 4-days the stop should be moved to breakeven so today being the 4th day we'll amend that tonight. The chart shows a poor close so no harm done if we get stopped.





This post may contain advice that has been prepared by Reef Capital Coaching ABN 24 092 309 978 (“RCC”) and is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

Hi,

Nick, That figure that Arnold uses..

According to Arnold these symmetrical triangles have an 86% chance of breaking with the trend.

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is not accurate according to T. Bulkowski, who has a figure of 54% (Pg 752 in the Encyclopedia of Chart Patterns).

Have you done any statistical analysis of this on our market as methinks it may vary over time.

brty

Bulkowski is using more classic triangles that may take many months to form. Arnold is using small tight triangles that take from 6 - 12 days to form. I'd say a better comparison from Bulkowski's work is the High Tight Flag:

http://thepatternsite.com/htf.html

sleepy said:

Yes there is a chapter on Exits and in it he also discusses TWO rules that will allow you to move your stop to break-even, thus reducing your risk to zero.

Only 7 pages long but invaluable in my opinion.



As Nick keeps reminding us its all about 'focusing on the losing trades', as the winning trades take care of themselves.

sleepy

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Donald Trump puts it like this.....'Look after the downside - the upside will look after itself'.

The CHD trade remains intact with the stop at breakeven.

Here is another of the patterns called the continuation Head & Shoulders. He says its rare in commodities but they're quite prevalent in US stocks. I was able to get some positive slippage on this one last night. We'll watch how it transpires.








This post may contain advice that has been prepared by Reef Capital Coaching ABN 24 092 309 978 (“RCC”) and is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.