The Mighty Power of Reversal Signs
From the Trading Desk of Oliver L. Velez
The Only Three Things That Matter
Trading is not as complex as people often make it out to be. Stocks go up; they go down and sometimes they go sideways. Only these three simple movements exist, period! What’s so complex about that? If one were to learn how to handle himself in each one of these three movements, or trends as they are often called, would not most, if not all, of the market’s activity be covered, be understood? Yes. Looking at the 2-minute chart of Charles Schwab (SCHW) above, can you clearly see the three major movements I just wrote about? I’m sure you can. Look at the chart and point out the down move. Now identify the sideways move, then the up move. How did you fare? I bet you did superbly. Congratulations!
Simple But Not Easy
Simple? Yes. Easy? No way. Not when the bars are moving. Why? Because understanding does not always easily translate into right action. Aaaaah! Therein lies the rub, my friends. Knowing what to do, is no guarantee that we do it. This is why no training or education is ever complete without a period of real, live, supervised trading. Educational mastery is not enough without some level of experiential mastery, and this I accomplish by putting each one of my traders through five rigorous days of live trading, with real capital on the line…my capital. Those five days are critical to the trader’s future success because they serve as the necessary training ground for transmuting the intellectual knowledge of “what to do” into the highest form there is, experiential knowledge. When something becomes known and understood through experience, it’s yours forever.
Two Days Can Change Your Life
So something can be simple, but not easy, such as hitting a little white ball sitting between your two feet into a hole in the ground only 4 feet away. Simple but not easy. But let's thank our lucky stars that trading is not difficult to learn and hard to pull off. If that were the case, the already small number of traders who make it would have even fewer cohorts. Because of the simplicity of how markets work and move, it only takes me two days of instruction to teach a student all he/she ever needs to know to trade for a living. My 2-day seminar, Trade for Life™ - A Complete Guide to Trading for a Living, is divided into 24 sections. Of the 24 sections, I consider the one that deals with the Power of Reversal Signs to be the most important, by far. All my traders learn that there are only seven signs that clearly indicate that a stock is about to change its direction. My students not only learn how to identify each one of these seven signs, they learn how to exploit them each day for consistent profits.
Almighty Tails – The Master Key to Timing Reversals
Of the seven powerful reversal signs, the one which commands the greatest potency and accuracy is the almighty Tail. Tails come in two varieties, Bottoming Tails (BT), which have bullish implications and Topping Tails (TT), which have bearish implications.
Here are a few facts that will help you understand the power of Tails as a reversal sign and their proper use. After reading the below points, a full understanding of the chart above should be the result.
Read and reread the above points three to five times. The full and complete understanding will help you master one of the most potent signs of a playable reversal. Tails are so reliable that I have traders who earn their entire livelihoods from their use. They rely on nothing else. To help further your understanding, I will soon add a podcast to this article. So stay tuned.
Happy New Year and Happy Trading!
hey oliver. Nice site, just came across it. I've been reading your book, and trying around your 3-5 drop bar method.
Anyways, hope to see more of your stuff coming up. Its a pity i'm based in Singapore, and i cant attend your seminars.
Have a good new year.
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Hello friend, and welcome.
Firstly, let me say that I'm sincerely delighted you find the work on this blog informative. Please stay tuned as things are sure to get even better and more educational with upcoming video blogging and much, much more. So make sure you subscribe to the blog by putting your e-mail in the subscribe box on the lower left-hand side of the blog's main page.
Secondly, I'm not sure why you feel being in Singapore is such a limiting factor. In today's high tech world, location largely irrelevant. Most of our education is conducted "online." For instance I have traders in China, Israel, Russia, even Australia who not only have been educated in my methods of trading via our online 2 and 5-day trading seminars, they all have been funded by me starting with a $50,000 account and I've never actually met them. They are my traders.
In our first ever online Trade for Life 5-Day Live Trading Lab held this past December, we had 163 attendees from all over the world. Each graduate of that 5-day session was funded $50,000 and now trades for Velez Capital Management, LLC, under our guidance and care of course.
So, just as you are being educated by the various articles and posts in this blog while I am in New York City and you are in Singapore, you can participate in higher levels of education and even trade for and with us without ever coming to the United States.
Please to the time to review our events page to see which upcoming online events fit into your time schedule. www.vcmtrading.com/events.php
In fact, I'm conducting a free 2-hour online presentation tonight at 4-p.m. ET. So if you have the time and are up, register now and tune in. I'm sure we will talk more soon.
Happy Trading!
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Your blogs are great!- The education you offer is fabulous! Yes, it does appear simple, but not easy to follow through (Ahh-the demons. Just got your book & a 'nanno' for Xmas...I'll be listening to your "wisdom words" till I can shout "Got It!" - Thank you...& Happy New Year!
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You are great Carmen. Keep up the study and hard work. It will pay off in the end. And know that I'll be with you, all the way.
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Hi Oliver,
I sincerely like your efficient system of trading, have several of your DVDs and books. I am also looking forward to take your workshop when I have the means. I am just curious : daily SPY on 7 January evening was exactly showing the Bottoming Tail with most of the characteristics you described and in next morning, 8 January it showed a little bit of green over the previous bar, but at the end of day it turned into a very long red bar.
If I entered that trade for keeping a few days I would lose, since it broke the prior low (support)
If there is something that I missed could you please explain ?
Thank you
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Dear Trader:
You question shows a sincere effort to learn and I truly appreciate that. It also shows the need for the full education I provide, not partial bits and pieces because, as I'm sure you and many others know, a "little" bit of knowledge can be more dangerous than none. Let me explain where you went wrong in assuming that you should have been thinking about going long SPY on 1/07/08.
First of all, I teach all my traders a number of Cardinal Rules of Trading which are only to be broken on very specific but rare occasions. One of those rules is simply this: "Always Trade with the 20-period Moving Average, not against it." The daily chart of SPY on 1/7, while showing a bottoming tail of sorts, is "under" its 20-day moving average, which would tell any trained VCM Trader to ignore it. When a stock is under a declining 20ma, one is to focus on short signals, not long signals. Topping tails along with other clear signs of weakness should be what you are on the lookout for when a stock like SPY is under performing its 20-period moving average.
What's more, we teach our traders to also pay a good deal of attention to the eight period moving average. If you were to look at that key average, you'd see that SPY was so weak it was even under performing its 8ma, as well, suggesting almost no hope for the stock at that time.
As powerful as Bottoming Tails are, they are not all created equal. You've got to know when they rule as an overriding turning signal and when they are to be ignored as just a blip. I hope this small correction shows the need to obtain and master the whole method I teach before you go about risk money on any signal part.
Lastly, let me point your attention to today's action in SPY. While one can never know, I'd venture to say that today's bar in SPY has greater odds of putting in a stronger bottom that the bottoming tail bar you point out on 1/7. There are a variety of reasons for this that all my VCM Traders should know and recognize. Let's hope they do and see what happens. I have included a chart for your review. I hope you enjoy.
Good luck and happy trading.
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Oliver, even your blogs are well timed! I can't wait for the podcast of this one. I've read all your books and seen your dvd's. I'd love to hear how you made the leap in your early days from losing $$ to "discovering" (inventing?) your three bar tactics. I'm so glad I can count
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Dear Bill:
I appreciate your support and am glad my work has been an encouragement to you. While this may not be the format to go into great detail about my past experiences in becoming a consistently profitable trader (mostly trials and tribulations I might add) I will tell you that when I started my journey toward trading mastery some 21 years ago, there were few books on the market and even fewer qualified mentors to learn from. This made an arduous "trial and error" method the only way to learn, to develop and potentially prosper. And I'm sure I don't have to tell you that trial and error methods, while very advantageous in the long run, are extremely expensive ways to learn. Why? Because you learn what really works and what does not by putting real money on the line. There is no substitute for "real-world" learning. I call it The Experiential Way. But most don't go this route.
Most people in any endeavor try their best to learn from the mistakes of "others." They do this in an attempt to bypass the pain that always accompanies the fire and the "going-through" process that builds character and seasoning at a much deeper level. And I understand this thinking, although it is not always correct. I understand the desire to bypass personal pain if you can. But the truth is, there are some things that you simply can't learn through someone else's eyes. Going to see the great Pyramids of Cairo, Egypt and personally witnessing them in all their awesome glory and power is quite different from recounting your neighbor's trip to see them two years prior.
Deep experience, the kind that affects real change, is the only way to make something truly yours. And while I hated every losing minute of my first 5-years, I appreciate that "losing by fire" period today more than any other. Why? Because I realize that I win today because I lost yesterday, but granted I lost with intelligence. And that is what one must do to turn loss into gains, lemons into lemonade. You've got to make sure your losses are made with intelligence. Then losses serve as stepping stones to success. Then and only then do they house your future gains.
Today, through VCM, I attempt to grow traders using the same "trial and error" way that lead to me growing and blossoming as a trader. I give each one of my students my own personal money ($50,000 to start) to allow them to begin trialing and erroring, as it were, at no risk to them. What do I mean by that? I ABSORB ALL THEIR LOSSES. I do this because when I was trying to find my way in the markets 21 years ago, I did it with my rent money, my car payment money, the money that should have gone to take care of my other, more important, responsibilities. I created quite a bit of havoc for myself at that time. I was so obsessed it become a good trader that I was willing to go broke and be a bum if I had to. I was either going to be a trading star or be homeless begging for change with a tin cup in one hand and a copy of the Wall Street Journal in the other. I SAW ONLY THESE TWO OUTCOMES. It was crazy, and I could not help myself.
I don't encourage that for anyone. It sounds admirable today, but its not. It's foolish. So today, to prevent that type of attitude, and to foster an environment free of the fear of loss, which greatly crippled me for years, I completely remove it for my students by giving up my own money, by personally funding my students' trial and error period. People have thought, and still do think, I'm crazy for doing this. Well, it's not the first time I've been called that and it won't be the last. But the faith I have in my ability to transmit my success to others is that strong. You know what I mean? And so far the results are very impressive. More time will tell in the end, but I feel this stronger than anything else I've felt in my entire life.
I've been on a lot of paths in my life and must say that most of the paths I blazed worked out for me and anyone who dared to take the ride with me. I have to admit that I've been a trailblazer my whole life. But this path, the one I'm on now, is far more grand, far more nobel, far more powerful than anything I've ever fathomed. My gut tells me it's bigger than even I realize. We all shall see.
So, stay tuned, and stay the course. If I can make it, I truly think anyone can. And I'm putting my one money on the line to prove it. Wish me luck
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Amazing/Question:
I'm in the process of buying all your CD's and books to study and gain some understanding of your systems and learning more on candle sticks.
Not being familiar with trading or candle sticks today I followed MELI and PIR among a few others. It's amazing how this actually works. My positions have increased by strict adherence to your rules. Check out the charts for yourself. One stock not listed is up 50% today alone.
I will attempt to participate in your 5 day work shop in March but definitely this year. My work schedule is some what hectic, which is why I was very pleased to see that you accept PT traders. This area of the market has always been my passion and I look forward to joining your team.
1. What computers are necessary for trading?
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Dear Trader:
I could not be more delighted to hear that even a cursory understanding of what I teach my traders has dramatically helped your current market play. Just imagine the growth and progress you'll experience once you've obtain the full view. It takes time, though, as do most things worthwhile, so don't rush. This is a marathon, not a sprint and he who grows gradually yet steadily will ultimately outperform all. Stay the course and stay in touch. You'll continue to be served well here.
As for what type of computers you need to trade, any basic system today will be o.k., particularly if you trade with us, as our platform is streamlined and very light, unlike the systems of old. They were clunky, big pigs that ate up memory like it was going out of style.
Much today depends on ram (memory) and how many screens you want. I'd be sure to allow for growth from your current monitor set up to a few more and I'd always boost ram over the normal levels. Aside from that, all else should be fine.
With this being said, VCM and DELL are teaming up to offer our traders three different computer set-ups ideal for trading in a high-octane manner, all at a cost not available to the retail public. We will announce the start of this offer once the deal is inked, which should be very shortly.
I hope this helps. Happy Trading!
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Hello Oliver: Thanks this helps very much, I was anticipating having to invest another $5,000.00 into computers and such.
I learn from observation and by doing, having been burned many times I would rather put some of your teachings through the fire to experience the emotions for myself and now I know it truly works and I look forward to your training. I will let you know when I join since my schedule is very tight. Having waited for this my whole life I will definitely take the road of the tortoise and not the hair.
Another quick comment, when I first saw you advertisement starting in 2007 I said to my self, another broker looking for experienced people.
It took me into the 4th quarter to realize you also take non experienced traders, that’s when I got really excited and I’ve been steadily bought all your suggested books and CD so I can have a foundation prior to taking your course.
Do you personally train all your new traders? Additionally, do you allow your traders to personally get involved with your non profit organization.
Carlos
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Carlos:
Yes. We take on both experienced and inexperienced traders. In fact, I prefer to catch a would-be trader very young in his/her development to ensure that I can built him/her from the ground up. What's more the inexperienced trader has fewer bad habits and erroneous beliefs to undue. They tend to turn out to be my best traders. So yes, the inexperienced are "very" welcomed here.
As for your main question, the answer is a resounding "yes." I personally train each one of my traders. Please understand that I am placing $50,000 in the hands of every beginning trader. That's my own personal money at risk, so it is in my best interest to ensure that my traders have the very best of everything, from the training, to the support to the mentoring. That is why I dedicate myself to each student for Life.
I look forward to you becoming part of our trading team.
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WOW! Mr.V -- You're full steam ahead on all angles to get this to work for us! God bless you...now with PC set-ups!
I'm in awe of your ambitions, and thrilled & honored to be able to hang on to your coattails. "this place is jumping!" Thank you!
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WOW! is right, my friend. And its enthusiastic, passionate people like you who help to make VCM jump as much as it does. I love what we are all doing together more than anything else I've ever done in my entire life. I've been fortunate enough to have accomplished some big things in this industry, yet nothing compares to what I'm doing now via VCM. I'm excited to no end, which makes the countless sleepless nights, constant travel and overall hard work seem like a piece a cake.
I thank you and the rest of of my current 570 traders. You're my family....for Life!
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Not receiving blob by email
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I will check into this. I the meantime, make sure you have subscribed to each individual post separately as well as to the entire blog. LEt's see if that clears things up for you.
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Great to have such practical emails from you Oliver, both Lesson of the Week and New Entries on your Blog. As I (and no doubt others) save these on Outlook, is it possible for you to be more specific in the title line. For example instead of it being "Lesson of the Week" then the date or "New Entry" could you say eg "The Mighty Power of Reversal Signs" ie the title of the subject so we can refer back to the required subject rather than search through them all?
Many thanks Oliver and keep up the superb work.
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I think this is an excellent suggesting and will immediately begin doing so. Thanks for suggesting and thanks also for your support.
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Great blog, Oliver, particularly the podcasts when you are able to attach them. Having taken your 2&5-day courses in the past, but now currently based in Asia with its 12 to 13-hour time difference from New York, makes it difficult to be active in the US markets throughout its regular session. The podcasts though make it feel as if I'm back inside one of your offices listening to you teach!
Have a great 2008! Thank you.
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Domingo:
Amazing. You're worldwide, now. I love it. I hope you do get some time to pick up your trading activity soon. In the meantime, you can count on my podcast additions to come more frequently. I promise. Stay tuned and stay in touch. We miss you.
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