TrendTimesVolczx6 020531

May 30, 2002 Volume 6
Articles KING’S WATCH
* GACK *
King’s Watch
by KingCAMBO
Options with Options:
A
Spreads
nd this market coughs up yet another hairball.
And another BIG rally that wasn’t…
Quiver: Enthiatic
Charts 2
But wait, there is still tomorrow. Actually our “Bull
Window” we wrote about in the last issue of this screed
What Gann Said About won’t close until June 7th – even if it has felt like it’s
1929 been slamming shut on our figures this past few ses-
sions. And then, right there…
Tuning up Your Yet another “Bin Laden is dead rumor.” BUY EVERY-
Workspace THING and hurry. And then the big fizzle.
Mr. Johnny On The Spot Homeland Security with

another red light, green light, one-two-three warning.
There’s an empty knapsack on the Brooklyn Bridge—it
Join us live in our Trader must be a bomb! “Have a wonderful Memorial Day
Forum. www.kingcambo.com weekend, because you’re probably going to get nuked
on your way to the beach.” Currently there are over
Technical Analysis one million plus neighboring dysfunctional
Workshops:
fundamentalists massed at their India/Pakistan
border, each with A-Bombs playing a nuclear game of
Simple Fibonacci chicken.
Position Paper What can you say about a whole lot of nothing? No
impetus. There’s just no reason to be in the market for
John Q. Sixpack—but then the fear of not being in when
the train leaves keeps him jumping in, jumping out, in,
out, out, in. Translation: stuck in what has become an
excruciatingly boring trading range, AGAIN.
Today we test for the third time in 2002 that magical
KingCAMBO’s Trend Times © 2002 King Cambo Ltd. All rights reserved. Page 1
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DOW 9810 false bottom. The last two tests have been good for bounces in the
following sessions and weeks of +500 or more, à la February of this year and lo
these few short weeks ago. Today’s test of the 9810 faltered slightly and then ran a
nice +101 back into the close of 9911.69.
Will this third test be the charm? Who knows. My guess is the summer of 2002 will
be remembered as the zig, the zag, another zig, and maybe some more zag, as we
bounce back and forth into that greater bear cycle you are about to read in these
next dozen of pages. If the big rally is coming, let’s bring it on. The current trading
environment is about as much fun as a weekend in Paramus, N.J. doing “the
humbuckle.”
I could drone on here but why bother trying to opine about a whole bunch of noth-
ing. Let’s use the next few pages to review the key weekly charts and see if we can
find something to get excited or panicked about.
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DOW CURRENT TREND:
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1. The current down wave that followed our March 19th is still intact, even
despite that noble attempt to break it three weeks ago, It will behoove us
then to take this Dow ABOVE 10,400 or so before we can perfect a new
Three Price Break Long and get a confirmed trend reversal. In the meantime,
tattoo Dow 9810 support on your forehead, lest you forget it.
2. The three walls of Fibonacci resistance on our way to happier days are –
10131.40, 10233.00 and 10334.70.
3. This is also 200 EMA hard support. Just under the 9810 area, and near that
9750 magnet we were dealing with late last fall and then this January. We
have had somewhere between five to seven tests of this line since last
October. Is this the line in the sand?
4. Fibonacci MACD still says this market is short – can get it make the bull cross
back up?
NASDAQ CURRENT TREND:
Support…….Is FUTILE!
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While the precise and in-depth technical analysis shown above pretty much sums
things up for the Nasdaq, perhaps a more traditional chart is in order here:
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1. True support for these Naz dogs? Might be coming to a computer screen near
you in the next few months.
2. If the quasi bottom MSL formed back in April bites the big one, expect some
fear, genuine loathing and run chicken little selling on those fabulous tech
flyers of yours. The dot bomb darlings are all ready dead. Stick a fork in -em.
3. The Nasdaq has a good 170 points of sheer resistance, between where we are
as I write this, before it can even attempt a three price break long.
4. 200 EMA resistance for the Nasdaq. Maybe if we all collectively sniff enough
airplane glue, we can get the Nasdaq that high.
5. Fibonacci MACD on the Nasdaq: It’s long, it’s short, it’s short, it’s long. It
doesn’t know what it is.
OEX CURRENT TREND:

Much like its sister the Dow, the OEX has a magic carpet ride it continues to test, for
a dandy bounce each time this year it has kissed it. And that level is OEX 520.00
Same deal here – bounce and fly or kiss and croak? This time should be the tell:
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1. That important support. This is the line of last defense but the OEX has held
it well—to date anyway.
2. OEX 555 would give us a nice healthy three price break long.
3. Above the 3PB Long up to the top of the current range is going to prove very
trying resistance. But it would be a heck of a run if OEX makes a go for it.
4. 200 EMA resistance is descending more and more each week and OEX 600,
which is a dream right now, would be a wall of Kryptonite if hit.
5. Fibonacci MACD is short, but could dovetail long with not too much more
effort. The key components of the OEX need to kick in some muscle to make
it happen.
And…THAT is a wrap there, party people. Your greater trends for the things that
matter. We have one last session here for the fabulous spring market 2002. Will
they sell in May and go away? By the time most of you download and read this issue
we may know the answer to these ponderous questions.
We have a lot of good instructive stuff in this issue, so I will leave you to it. Keep in
mind this last window we have been watching and waiting on ends on June 7th. Try
not be left as the lone bag holder. And in the meantime…HAPPY TRADING!
Cazart!
KingCAMBO
Articles Why You Have
King’s Watch
Options with
Options or
Options 101
Spreads
By Sally8
Quiver: Enthiatic
Charts 2
SPREADS
What Gann Said About
1929 So far we have covered the basics of directional or
straight options. There is no question that an options
trader can get the most bang for his buck by being long
Tuning up Your or short the right put or call at the right time. You buy a
Workspace call if you think the stock is going up, and you buy a put
if you think the stock is going down. For example, if you
are long an in-the-money call and the stock takes off,
your potential profit is theoretically unlimited. Now this
Join us live in our Trader approach is fine under certain conditions, i.e., if you
Forum. www.kingcambo.com have sufficient information about market activity and
volatility, time enough to follow the markets closely all
Technical Analysis day long, and lots of money to risk if you’re wrong. For
Workshops: many of you this is all you need to know. However,
there is so much more to options trading. There are so
many strategies that might better fit the current mar-
Simple Fibonacci ket conditions or your current needs.
Position Paper We’ve discussed the conservative Covered Call strategy
and its uses for protecting the stock you own and gener-
ating income. This week we start a series on SPREADS.
You will see different names for all of these strategies,

but I think that the names I use are pretty standard in
the industry. We will start with the simplest of these
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strategies and as the weeks progress we will get increasingly more complex. Don’t
let that deter you from trying to understand what these strategies are used for.
They each have a place in your toolbox.
There are many different kinds of spreads, and we will go over some of the most
important ones over the next several issues. These strategies will include: Vertical
Spreads (the Bull and the Bear Spread), Volatility Spreads (including Straddles and
Strangles) Time or “Calendar” Spreads, Ratio Vertical Spreads, and finally, the
Butterfly Spread.
First we need a little vocabulary so that we’re all singing from the same song-sheet.
We need to distinguish Directional Spreads from Volatility Spreads. Once we
understand the concepts behind these terms, we are on our way toward developing
a set of powerful money making tools.
Directional Spreads
You use a directional spread when you are trying to capitalize on a directional price
movement in the market, i.e., up or down. The volatility in the market is of second-
ary importance. If you go into the position with a bullish sentiment, you want your
spread to remain bullish, i.e.,delta positive, regardless of any change in market
conditions. On the other hand, if you are bearish, you want your spread to remain
bearish, or delta negative, e.g., no matter if volatility or interest rates change.
Remember we talked about Delta when going over the Greeks. Delta (also known
as the neutral hedge ratio) is the percentage of the price movement in the underly-
ing stock that will be translated into price movement in a particular option strike.
For example, a delta of 50 percent indicates that the option will move up (down) by
one half point for each 1 point rise (decline) in the underlying stock. Call options have
positive delta; put options have negative delta. A Delta increases as the stock price
rises, and decreases as the stock price declines. The delta is also commonly used as
an approximation of the probability that an option will finish in the money.
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Volatility Spreads
A Volatility Spread is a little more complicated. The trader who puts on a volatility
spread is chiefly interested in the degree of volatility of the underlying, and
only secondarily in the directional movement of the underlying. Volatility, for our
purpose, can be defined as the measurement of price fluctuation of the underlying,
i.e. the “up and down movement” of the underlying as it deviates from its average
annual price. Now the Volatility Spread trader may have a bullish or bearish per-
spective on the market, but unlike the Directional Spreader, if he doesn’t factor in
volatility, the intended direction of the spread could be reversed.
We will cover Volatility Spreads in depth in a later issue, so I just want to stress a
couple of their characteristics for now. First, volatility spreads are delta neutral, that
is, the total deltas of the long position equal the total number of deltas of the short
position, In effect, long and short deltas cancel each other out. Second, volatility
spreads are sensitive to a number of factors, including the price of the underlying,
time until expiration, volatility, and finally, interest rates and dividends.
Today we will concentrate on the Directional Spread.
Vertical Spreads or Combinations

There are two types of Vertical Spreads, the Bull and the Bear Spread.
The Bull Spread

A Bull Spread is a strategy involving two or more options that will result in a profit
from a rise in price of the underlying. A Bull Spread would be implemented by an
investor who was bullish on the underlying, but who is not bullish enough to buy a
call option straight out.
The Bear Spread

The Bear Spread is a strategy involving two or more options that will profit from a
decrease in the price of the underlying. This investor is bearish about the underly-
ing. He hopes to capitalize on what he foresees as a downward move, but is some-
what more risk averse than the outright buyer of a put.
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This simple combination gives you a range of profitability with less risk than the
outright purchase of a naked put or call. A Vertical Spread involves buying one
option and selling another, where both options are either calls or puts and have the
same expiration date (e.g. July), but have different strike prices.
Your spread is bullish or bearish depending on whether you buy the lower strike
option or the higher strike option. A bearish strategist would go long the higher
strike (hoping the price will go down, resulting in profits), whereas a bullish strate-
gist would go long the lower strike (hoping the price will go up, resulting in profits).
Keep reading; the rationale behind this statement will become clearer as you go
through the examples below.
Both Bull Spreads and Bear Spreads come in two types. Bull Spreads can be either
Call Bull Spreads or Put Bull Spreads, and Bear Spreads can be either Call Bear
Spreads or Put Bear Spreads. The distinctions can begin to get complicated, so write
this stuff down or print this out.
Call Bull Spread consists of the purchase of one call option with a lower strike
price and the sale of a another call option with a higher strike price.
Put Bull Spread consists of the sale of one put option with a higher strike price
and the purchase of another put option with a lower strike price.
Call Bear Spread consists of the sale of one call option with a lower strike price
and the purchase of another call option with a higher strike price.
Put Bear Spread consists of the purchase of one put option with a higher strike
price and the sale of another put option with a lower strike price.
Before we begin our discussion of Vertical Spreads let’s make sure we are all using
the same terminology and concepts.
First: Let’s distinguish Credit from Debit spreads
Second: Note the criteria for distinguishing a spread’s “bullishness” or “bearishness”
Third: Examine the risk/reward profiles of the underlying and a naked call, in order
to compare it with that of these spreads.
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Credit vs. Debit Spreads
A Credit Spread is, simply where the receipt of cash from the short option exceeds
the amount of cash paid out for the long option, including transaction costs. So if you
recall terminology from Accounting 101, when a trader puts on a credit spread, he
receives money, or establishes a credit. As we will show good examples of a credit
spread would be the Bull Put Spread and the Bear Call Spread.
On the other hand, a Debit Spread is when the amount of cash paid out for the
long option exceeds the amount received for the short option, including transaction
costs. Thus the trader who puts on this position ends up with a debit, or an outflow
of cash. Bull Call Spreads and Bear Put Spreads are debit spreads.
Beginners tend to equate Bull Spreads with Call Spreads and Bear Spreads with Put
Spreads. After all, long calls are bullish and long puts are bearish, so it follows that all
call spreads are bullish and all put spreads bearish, right? No way!
What determines whether a spread is bullish or bearish is not whether it is com-

posed of puts or calls. Rather, if you buy the option with the lower exercise price and
sell the option with the higher exercise price the spread is bullish; and conversely, if
you buy the higher exercise price and sell the lower one the spread is bearish.
There is no better way to introduce the benefits of spreading than by directly com-
paring a spread’s risk/reward profile with the purchase of the underlying or a “na-
ked” option.
Assume we are dealing with the purchase of 1 ABC June 40 call @ $5 with the
underlying trading at $42. The risk/reward profile would look like this:
*Breakeven: Since we paid $5 for it, we would break even on the June 40 call if
ABC stock was trading at $45. Why? Because we have to recoup the $5 payment for
premium. $40 + $5= $45
*Profit: we would make money on the June 40 call for every gain above the Break-
even point. Since theoretically, the stock price could go up infinitely, our potential
profit is unlimited.
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*Loss: If the option closes below $45, we lose money. The great thing about options,
as we all know, is that we don’t have to worry about how far below 45 the stock
closes. It’s not a dollar for dollar loss as if we simply owned the stock. The most we
can lose is the total premium we paid, or $5.
Well, you might say, $5 ($500 per contract purchased) is better than the loss on a
straight out purchase of the stock. We’ll just buy the call. But what if we bought 20
calls? Now we’re talking $10,000! When we buy 20 calls, we control the equivalent
of 2,000 shares of stock. I don’t know about you, but I don’t want to gamble
$10,000 unless I am REALLY sure of what’s going to transpire. That’s why the
spread can work.
The Bull Call Spread

Anyone who uses a Bull Call Spread is Bullish in his attitude towards the underlying
in question, but just not so bullish as to merely buy the underlying or naked calls. He
wants to gain from the increase in price of the underlying, but isn’t confident enough
to “bet the farm” that the underlying will go up. A hedged position is best for him. So
he chooses to put on a Bull Call Spread, enabling him to put on a bullish position with
a bit of an insurance policy for a lower cost than a naked call and a lot less risk than
owning the stock. We shall see why this is so in a moment.
Remember we said that a bull call spread is simply a combination of two options, a
long one with a lower strike price and a short one with a higher strike price, where
both options are of the same type and expiration but have different strike prices.
Let’s look at an example:

BUY 1 ABC June 40 call @ $5
SELL 1 ABC June 50 call @ $3
Net cost of June ABC Bull Spread $2
OK, so what is the possible risk, reward and breakeven point of this Bull Call Spread
and how would the risk and reward profile of an outright call compare? So get out
your calculator.
*Loss: Let’s start with the easy part. The most this Bull Call Spread can lose is $3,
(or $300 per spread.) That’s because we paid $5 for one June 40 call, incurring a $5
debit; but, we sold one June 50 call for $3, generating a $3 credit, and, (worst case
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scenario) because options are the right, but not the obligation to engage in a trans-
action, if we want, we can just let them both expire worthless.
Here’s the math: $5 - $3= $2. That’s a lot better than losing all $5 on the straight
call purchase, right?
*Profit: The big compromise in spreading is that the spreader loses the potential
for unlimited gain that he had with the naked long call, or by owning the underlying
outright. So, determining the exact profit is best done by keeping a simple little
formula close at hand.
The profit is limited to the difference between the strike prices (higher-lower) minus
the difference between the premiums (premium 1minus premium 2), if and only if
the underlying is above the second strike at expiration.
In the above example: ($50-$40) – ($5-$3)=($10)-($2) = $8
*Breakeven: Another formula here but much easier: The Breakeven point is equal
to the lower strike price + the difference in premiums.
In our example: ($40) + ($5-$3)=(40) + ($2)= $42
So, our breakeven on this vertical spread is $42 per share on the stock.
At expiration a Vertical Spread’s minimal value would be zero, (if both options
expire out-of-the money), and it’s maximum value is the amount between the
exercise prices, if both options expire in-the-money.
The Bull Put Spread

Now let’s take a look at the Bull Put Spread. In the put market, the Bull Put Spread
is the functional equivalent of the Bull Call Spread in the call market. The trader
putting on the spread has a bullish view on the direction of the market, and he sells
the higher strike put while purchasing the lower strike put. This scenario creates a
net credit on the position as a whole because the premium of the short put is
greater than the premium of the long put.
This is easy stuff. Let’s look at the maximum profit we can make, the maximum loss,
and breakeven point.
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*Profit: SELL 1 XYZ July 55 put @ $6
BUY 1 XYZ July 50 put @ $4
Credit: $2
The sale of this XYZ 50/55 put spread gives us a $2 credit for every contract we
buy/sell. This credit is the maximum profit we can achieve. Now let’s apply some of
what we learned above. If, at expiration, the underlying has a price above the exer-
cise price of the short put, then both options expire worthless. Why? Because these
are both puts, and a put is in-the-money only if it has intrinsic value. Remember a
put has intrinsic value only if the underlying price is below the strike price.
*Loss: What about the potential Risk of this position? We have seen that the reward
can only equal the credit earned. Memorize this folks:
The worst-case scenario for the Bull Put spread would be if the underlying expires
below the Higher strike price less the premium collected at expiration. The seller of
this spread can lose the difference in the strike prices minus the initial Credit.
*Max Loss: ($55-$50) – $2= $3
Below 50, the 55 put is always worth 5 points more than the 50 put. The 5 point
maximum value of the spread minus the credit we received gives us the maximum
loss.
*Breakeven: Remember, this is a bull spread, even though it is composed of puts.
Thus we have already seen how to calculate the break-even point. The breakeven
point of a Bull Put Spread is always the strike price of the higher option minus the
difference in premiums. Here $55 – ($6-$4) - $2 = $53
So, our breakeven on this vertical spread is $53 per share on the stock.
Bear Spreads
The Bear Spread is a hedged strategy that can be composed of either puts or calls.
Like the Bull Spread, the Bear Spread offers the trader a compromise, limited re-
ward for limited risk. The trader who is in a Bear Spread expects the underlying
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to decline.
There are various reasons for trading a Bear Spread:
1- The trader might want to enter into a position immediately to take advantage
of this decline but, has decided that the cost of entry of a naked long put
position is too high or,
2- The trader might have a specific price target on the underlying.
Recall we said that by definition, if the trader buys the option with the lower exer-
cise price and sells the option with the higher exercise price the spread is bullish;
and conversely, if he buys the higher exercise price and sells the lower one, the
spread is bearish.
It follows then, that if we are going to trade a Bearish Spread, with calls, it would
look something like this:
Buy 1 ABC June 95 Call @ $3 debit

Sell 1 ABC June 90 Call @ $5 credit
$2 credit
Note that if ABC is below 90 at expiration, both options expire worthless because
these are calls, and calls have intrinsic value only when the underlying is trading
above the option’s strike price. The two strike prices are 90 and 95, so anything
under 90 means no intrinsic value for the calls.
Is this a good or a bad thing for us here? It is a good thing for us. This is a bear
spread, so if we are in the trade we want the market to go down. We already col-
lected $2 for it. So, if both options expire worthless, then we simply pocket the $2
credit.
If ABC expires above 95, then the spread would be worth its maximum of $5. Above
95 both options have intrinsic value, and the maximum a spread can be worth is the
difference between the strike prices of each of its components.
Here’s the math: $95-$90 = $5
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But be careful. We don’t collect $5 here. Remember we already received a $2 credit.
We are SHORT the spread. So in this we received a credit of $2 for a spread that
ended up being worth $5. We just lost $3 on the deal. (Poor, but possibly better than
being short the stock or naked calls.)
*Maximum Profit: For the Bear Call Spread, this is the credit received, in this
case $2.
*Maximum loss: For the Bear Call Spread, the maximum loss is equal to the
maximum possible value of the spread minus the credit received. In our example:
($95-$90)- ($2) = $5 - $2 = $3
*Breakeven: the short strike plus the amount received for the spread.
$90 + $ 2 = $ 92
The call we are short will lose money with the stock rising. It will lose until the upper
strike will stop the losses and “kick in”, thus the max of $5 in this case. Since we
collected $2 to begin with, the worst we can do is lose $3 and the point where we
start losing (the Breakeven) is that lower strike plus the amount we took in…$92.
The Bear Put Spread

The Bear Put Spread is composed of both a long put and a short put where the long
put has the higher strike and the short put has the lower strike price. For example:
Buy 1 ABC JAN. $80 put @ $5 paid

Sell 1 ABC JAN $70 put @ - $2 received
Cost $3 (debit)
The cost of the spread is the difference between the premium paid for the long
option, and the credit received from the short option.
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Let’s try to figure out what the maximum risk and reward is for our hypothetical
ABC spread. Worst-case scenario, say ABC closes above $80 at expiration, and
therefore, both sides expire out-of-the-money and both options expire worthless
The trader loses the $3 he paid for the spread.
*Max Loss: The Bear Put Spread is a debit spread, The maximum amount of loss in
a debit spread (one that has been purchased) is the amount paid for it. In this case
$3.
$5 debit
$2 credit
$3 debit
*Max Profit: Figuring out the Profit (reward) is a bit more complicated, but should
still present us with little difficulty. Note that in our hypothetical ABC spread above,
the short ABC $70 put has value if ABC is trading below $70. Below $70, the value of
the short put would match, dollar for dollar, the value received for the in-the-money
$80 put.
The maximum profit for a Bear Put Spread is limited to the difference in strike
prices (strike 2 – strike 1) MINUS the difference in the premiums (option 2 – option
1) when the underlying is below strike 1 at expiration.
(Assuming the underlying is below 70)
Long 1 ABC JAN. $80 put @ $5

Short 1 ABC JAN $70 put @ -$ 2
The two strikes: (80-70) less the money spent/received - ($5 - $2)
($10) - ($3) = $7
The most we can make on this spread is $7.
*Breakeven: Higher Strike price minus net premium paid:
$80 - $3 = $73
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It is important that the “Bearishness” of the Put Spread is determined by the strike
price of the short put.
Again, this makes intuitive sense. The farther away, or “out-of-the-money” the
short put is, the farther the underlying has to drop for the spread to reach its maxi-
mum value.
I know this is a lot to take in all at once, but try to think through these trades one,
by one. Here’s a summary of some of the more essential points to take away from
this piece:
1- Vertical Spreads are combinations that are put on by the trader who has an
opinion on the direction of the underlying. A Bear Spreader believes the
underlying is going down, while a bull spreader feels it is going up.
2- A Vertical Spread consists of at least one long option and one short option
where both options are of the same type (puts or calls) and expiration date,
but have different strike prices.
3- One-to-one verticals are typical and have limited risk/reward profiles.
4- A spread’s maximum value is defined as the difference of the strike prices of

the two sides that compose it.
5- The maximum amount of profit in a debit spread (one that has been
purchased) is the maximum value of the spread minus the net amount paid.
6- The maximum loss of a debit spread is the amount paid for it.
7- The maximum profit potential of a credit spread (one that is sold) is the
amount of cash received.
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8- The maximum loss possible in a credit spread is the maximum value of the
spread minus the amount received from selling it.
9- At expiration, the vertical spread will be worth zero if both options are out-
of-the-money.
10- Take this slowly. Try a paper trade with one or several of these strategies.
The key to all of this is discipline and patience. I’ve never known a disciplined
trader who didn’t do well over time.
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Articles The Quiver: The
King’s Watch
Enthiatic Chart, Part
Two:
Spreads Using Fibonacci to Maximize
Profits
Quiver: Enthiatic
Charts 2
By Enthios
What Gann Said About www.enthios.com
1929
In the last issue I introduced the Enthiatic Chart (EN)
Tuning up Your as one strategy for trading ranges into breakouts. This
Workspace method trades multiples of two contracts. The first
contract exits at the edge of the range, and the second
contract “holds on” for the potential breakout. But how
do you know when to exit that second contract, if prices
run?
Join us live in our Trader
Forum. www.kingcambo.com
Technical Analysis
Workshops: Using Fibonacci with the EN chart
Simple Fibonacci Figure 1 shows three trades on the S&P Emini (ES).
The first two were marginal but the third one was the
Position Paper breakout. Trade one (1) reached its target for the first
contract, but may not have gotten filled on the exit
because prices did not move beyond the target. After
trade one was a short signal (2), but it was not trig-
gered. The next long trade (3) did not reach its target
and stopped out when prices retraced to the middle
line. The third long trade (4) reached its target just
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above the confirmation point of W3 (refer back to Chapter Two!). Remember that
W3 is confirmed when prices move above the high of the Seed Wave (W1), shown in
the box. At this point in trade (4), with a one point profit ($50) in hand from the
first contract reaching its target, we can now calculate the potential target of W3 to
exit the trade. In this case, the EN chart got us into the trade early, before W3
triggered. The Fibonacci tool shows that the target for W3 is 1090, a nice 4 point
($200) profit on the second contract.
Figure 1: Fibonacci Seed Wave Targets for EN chart
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Of course there are other Fibonacci methods for targeting the exit. In this example,
there was no immediately prior trading range that would have given us a high to
calculate a retracement from, so instead I used a simple Seed Wave calculation from
Chapter Two. However if there were a prior range high, we could also calculate the
retracement down from that high – a method used by Joe DiNapoli. Figure 2 shows
a continuation of the previous chart as prices move back down the other side of the
peak, from which we can calculate potential retracements down.
Figure 2: Fibonacci Retracement Targets for EN
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When there is a prior trading range, we can calculate the retracements from that
range and use them to help determine exits for the “continuation contract” in the EN
trade. Here the previous range is from (a) to (b). The Fibonacci Retracements tool
here draws not only the price retracements (38%, 50% and 62%) but also the time
retracements which in many cases act as pivots lines.
Trade (1) entered short as shown at 1096, and took two points on the first contract,
exiting at the lower band target of 1094. This was also the 38% retracement line. A
cautious trader would have taken profits on both contracts here, since the 38%
retracement line often provides strong support.
Trade (2) entered as shown, but failed to reach its initial target which was close to
the 50% retracement line. The failure of prices to punch through the 50%
retracement line was a good sign to exit the trade.
The third trade technically entered at point(4), but an aggressive trader would have
taken the signal at point (3), where prices dropped below the previous solid down
bar, which acted as support. This time, the initial target for the first contract was
achieved and a continuation breakout ensued. The obvious target was the 62%
retracement level of 1088 (5), a 3~4 point gain depending upon the entry point.
A word about Tick Charts:

Several real-time chart companies offer constant tick charts in addition to time-
based charts. The difference is that each bar or candle in a time-based chart is
made up of a certain number of minutes. Each bar in a five-minute chart, for ex-
ample, is exactly five minutes long. This is useful because when you are trading a
method that depends upon the close of one candle before an order is entered, you
already know exactly when that candle will close: in the case of a five-minute chart,
it will close in 5-minute increments. Each bar in a constant tick chart, however, is
made up of a specific number of ticks. Each time the prices changes from the ask to
the bid, and each time the bid or ask prices changes, that creates one tick. During
heavy market trading, there are about 100 ticks per minute on the S&P Emini.
However during a period of extremely light trading, say during the overnight trad-
ing session, there may be less than 100 ticks per hour. Therefore the bars in a
constant tick chart are volume-dependent, not time dependent. The advantage of a
constant tick chart is that you do not have to wait for the time period to expire
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before entering the trade, particularly if prices and volume are surging. By waiting,
you will often miss a portion of the trade. Usually when a price/volume surge oc-
curs, the ticks increase and the bar then closes quickly, starting another bar and, in
so doing, triggering the trade. Another advantage of constant tick charts is that you
can view the entire day’s activity – 24hours – in terms of the # of ticks. In this way,
the slowness of the overnight session, and of the lunchtime session, all appears in
context with the high volume of the opening and closing rush. Figure 3 illustrates
this by showing one 24-hour trading day on a 360-tick chart.
Figure 3: Constant Tick Charts
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The disadvantage of constant tick charts is that you never knew when one bar will
close and the next will begin. On the other hand, just as with tape reading, with
constant tick charts the trader develops a quick sense of market activity and can
anticipate bar closure. I find constant tick charts particularly useful in short time
frames, and use a 360-tick chart for the Enthiatic chart discussed here. This is
equivalent to about a 3-minute chart during high volume periods, and a 5~8 minute
chart during low volume periods. For the Nasdaq E-mini, I use a slower 480-tick
chart, which fits the indicator parameters that I developed for the Emini 360-tick
chart.
Next Issue
In the next issue I will conclude the Enthiatic Charts series by introducing the RS
Chart, which is an excellent and relatively safe scalping method. I will then explain
how it can be used in conjunction with the EN chart for more effective trade entry.
Articles What Gann Said
King’s Watch
About 1929
And What it Means
Spreads
to Us Today
Quiver: Enthiatic
Charts 2
By Romeman
What Gann Said About “Once stock prices reach the point at which it is hard to value
them by any logical methodology, stocks will be bought as
1929
they were in the late 1920s – not for investment, but to be
unloaded at a still higher price. The ensuing break could be
disastrous because panic psychology cannot be summarily
Tuning up Your altered or reversed by easy-money policies.”
Workspace
— Alan Greenspan, 1959 [1]
Although he died more than four-and-a-half decades

ago, the work of market analyst William Delbert Gann –
or “W. D.,” as he liked to be called – is still being studied
by a coterie of admirers.
Technical Analysis
Workshops:
Little wonder, since he is reputed to have taken some
$50 million – in 1950s dollars – out of the stock and
Simple Fibonacci commodities markets through his methods of trading
and analysis. [2] His techniques – including Gann
Position Paper Angles and his fabled Gann Wheel or “Square of Nine” –
are still being used by people ranging from hedge-fund
managers to individual traders.
Gann was active in the markets over a period of about

50 years, including the (up-to-then) unprecedented
buying spree of the Roaring Twenties and the panic
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selling of the Depression-era Thirties.
What did he have to say about that period in our nation’s history? And can we learn
something of value from it as traders and investors today?
Gann wrote several books and courses about the markets, including a novel, entitled
The Tunnel Thru the Air, which he said contained “a valuable secret, clothed in
veiled language.”
In his novel, he wrote: “I believe it is the duty of any man who understands science
and mathematics and the cycle theory, and knows what is coming, to warn the
people in order that they may prepare for trouble ahead. Many will scoff and laugh
and refuse to believe until it is too late.” [3]
A few months ago while researching past market behavior, I stumbled across what
appears to be a disturbing cycle. This one is not explicitly mentioned in Gann cycle
theory, to my knowledge, but the evidence for its existence seems compelling.
If you go back in 72-year increments from 2001, you will find important banking
panics and/or crashes in the American stock market in 2001, 1929, 1857, and 1785
(which were not limited to a single year, but continued over a period of years after
the initial break):
2001: Between mid-May and mid-September 2001, the Dow Jones

Industrial Average plunged from around 11,300 to around 8235, shedding
more than 25% of its value before rebounding.
1929: On Oct. 24, the Dow Jones Industrial Average lost 9 percent of its
value in a single day, which became known as Black Thursday. The crash
heralded the beginnings of many riches-to-rags stories and ushering in the
Great Depression. Gann writes, “The 1929 stock market panic was due
largely to money conditions brought about by overextended loans and
undigested securities.” [4]
1857: Aug. 24, the “Central America,” a ship laden with massive amounts of
gold from California, was lost at sea. This event precipitated a run on the
banks, leading to a three-year depression. [5] Gann writes, “The 1857 panic
was one of the worst in history up to that time. This was again due to too
much paper money in circulation. For every dollar in gold and silver, there
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was about $8 worth of paper money circulating. There were a large number
of bank failures and banks had to suspend payments.” [6]
1785: Although this crisis goes back to before the existence of the New York
Stock Exchange and even of the United States Constitution, there were
economic problems in the American colonies so severe that they led to
depression and were known as “the panic of 1785.” We are told that around
this time “several of the States began to issue paper money; and this was in
addition to the enormous quantities of paper which had been printed during
the Revolution and which was now worth but a small fraction of its face
value.” [7]
A reading of these facts leads to some sobering questions. Do we have any worthless
paper money in circulation today or are we in pretty good shape? Are personal
households, businesses, banks, and nations overextended when it comes to loans,
mortgages, credit cards, debt, and deficits, or do we have nothing to worry about? Is
the worst really over in the markets and the American economy or does it still lie
ahead of us?
“History repeats itself,” Gann writes in The Tunnel Thru the Air. “My authority for
stating that the future is but a repetition of the past is found in the Bible. Read Eccl.
1:9: ‘The thing that hath been, it is that which shall be; and that which is done, is
that which shall be done: and there is no new thing under the sun.’ Again ‘That
which has been is now and that which is to be hath already been.’ This makes it plain
that everything works according to past cycles, and that history repeats itself in the
lives of men, nations and the stock market.” [8]
Does history really repeat itself? Many commentators correctly note that a great
deal has changed in American society and in stock-market regulations since the
1930s. But human nature, as Gann liked to say, remains the same.
Read this account and see if you find any parallels to the past few years:
“1929 Wall Street Panic. — The cause of this panic was due to wild gambling not only
by the people in the United States, but by people in foreign countries. The whole
world was gambling in the stocks of the United States. People were buying right and
left regardless of price. Fortunes were made on paper in a short period of time.
Everybody from the chambermaid to the multi-millionaire was in the stock market.
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People had ceased to work and were watching the stock ticker. New millionaires
were being made in short time. People had neglected their business because they
thought it was easier to make money in the stock market. Never was there a time in
history where a speculative wave was more overdone than this one. Brokers’ loans
continued to mount until they reached over 8 billion dollars. It has been conserva-
tively estimated that the total loans on all stocks outstanding in the United States
exceeded 30 billion dollars.” [9]
What would Gann say about the situation today, in the Spring of 2002? Is the worst
over? Are we perhaps going to continue in a period of choppiness in the markets for
a while longer, and then a brighter future will dawn, with prices spurting higher in a
spectacular new bull market?
Based on what Gann wrote, I believe he would say today that the situation is des-
tined to grow worse than anything we have seen so far – that what we have wit-
nessed up to now has been only a mild bear market in comparison to what is coming.
Note that:
1. The real damage to the Dow Jones Industrial Averages did not occur during the
initial leg down in 1929, but in the 813 days between April 17, 1930 and July 8,
1932, when the Dow dropped a phenomenal 86%! If you had bought and held the
Dow from the high of 1930, when it looked like it might be rallying, it would have
taken you more than 20 years just to break even again, let alone make a profit. It
took about 25 years for the Dow to return to its 1929 high. [10]
2. As we have seen, according to my research, financial panics have hit the US in 72-
year cycles that have gone on for several years after the initial catalyst. And each of
these has been successively worse than the one before it (i. e., 1857 and the years
following were worse than 1785 and 1929 and the years following were worse than
1857).
Let us try to intuit where in “the cycle” we might be today.
In his book New Stock Trend Detector, Gann quotes a lengthy prediction he made
just after the 1929 crash, which reads in part:
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“The coming investors’ panic will be the greatest in history, because there are at
least 15 to 25 million investors in the United States who hold stocks in the leading
corporations, and when once they get scared, which they will after years of decline,
then the selling will be so terrific that no buying power can withstand it.”
He then goes on to say:
“It is a matter of record that the panic of 1931-1932 was the greatest in history with
the most severe declines ever recorded in the history of the New York Stock Ex-
change. This prediction was based on my Master Time Factor, which enables me to
tell months and years in advance when certain time cycles repeat and cause ex-
treme high and low prices. This is enough to convince any man that my discoveries,
based on mathematical science, can be depended upon to forecast future market
movements.
“HOW TRADERS AND INVESTORS WERE FOOLED IN 1930 TO 1932 PANIC
“Investors and traders lost money in this great panic because they listened to other
people who knew less about the market than they did and who were simply guess-
ing. Many a so-called wise economist said that the bottoms in November, 1929,
would not be broken and that this decline had corrected all the weak spots in the
market and that the bull market would be resumed. They said the same thing about
the breaks in 1930, 1931 and 1932. When the market actually reached bottom, they
did not know what to say because they had been fooled so long. They had not stud-
ied past history enough to know that after the greatest advance in history had
culminated in 1929, the greatest panic in history must follow and that it would
require a long time to liquidate stocks. Every time stocks made bottom, the newspa-
pers, government officials and economists said that it was the last bottom, but stocks
went down, down, down, until people lost faith and hope in everything. They went
lower than anybody dreamed they could go. That is what happens when everybody
decides that stocks cannot go down or that stocks cannot go up – they always do the
opposite. The public is always wrong, because they follow no well-defined rule and
are not organized. People believed that the Government by buying cotton, wheat
and loaning money could stop the depression, but when once a cycle is up and prices
are due to decline, nothing can stop them until it has run its course. The same when
the main trend turns up, neither government interference nor anything else can
stop the advance until it runs its course.
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“Every investor and trader should do his own studying and learn rules and apply
them and not rely on other people who know no more about the market than he
does.” [11]
What stands out to me in Gann’s analysis is that he says the greatest panic in history
“must follow” the greatest advance in history.
We know that the 1990s was the greatest bull market ever seen. If Gann is right, it
is, you might say, “mathematical” that a panic is coming and that it will the worst in
the entire history of the stock market. It would be the natural expression of the
pendulum action of a cycle. On the other hand, if “the greatest panic in history” is
not coming, then Gann theory must be flawed and we might as well call it all into
question.
There may be some brief “bull campaigns,” as Gann would say, and some may be
spectacular, but if Gann is right, the main trend is still down and prices are eventu-
ally headed “lower than anybody dreamed they could go.”
Gann describes the wrong reasoning that brought on the spiral of selling:
“The price decline from 1929 to 1932 was so drastic because people who bought at
high levels held on and hoped and bought more to average on the way down. They
were wrong at the time they bought the first stock and continued to be wrong by
bucking the trend and buying more to average, the worst thing that any trader can
do. Remember, average your profits, but never average a loss.
“After stocks had declined 100 points or more, other people began to buy stocks,
because they thought they were cheap – and the only reason they thought they
were cheap was because they were down 100 points compared with high levels. This
was the worst reason of all for buying stocks. Later, when stocks were down around
150, 250 and 300 points from 1929 top levels, other people bought for the same
reason, that they were a long distance down from the top and looked cheap. They
were wrong because there had been no change in trend. The time period had not run
out and the market had not given buying signals.
“If these buyers had only waited, and had known how to follow the rules laid down in
my books, WALL STREET STOCK SELECTOR and TRUTH OF THE STOCK TAPE,
they could have determined when the trend changed and could have bought stocks
at low levels and made big profits, but most of them were buying on guesswork and
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hoping that the stocks would go up. Many of these people, no doubt, made up their
minds to sell out when a rally came, but fixed a price at which stocks never rallied to.
They hoped for a rally, but the hope was not based on any sound reasons and there
was no sound reason for expecting a rally or an advance that would let them out.”
[12]
Of course, Gann may be wrong about history repeating itself. Or I might be wrong in
my interpretation of him. Or my idea of a 72-year cycle might be wrong.
But supposing that the general argument above is right, and we are headed for a
rout in the stock market, what advice does Gann give to us?
Throughout his writings, the Wizard of Wall Street warns us against falling prey to
the opposing emotions of hope and fear, and he gives prescriptions for how to pro-
tect investment capital and profits. They are simple rules that we have probably all
heard time and time again, but they come from a man with decades of experience in
trading both equities and commodities with a high level of success and profitability.
“Never get the idea in your head that you can or will hold a stock until it goes your
way. This is nothing but pure stubbornness and is not based on any sound logic or
reasoning. In case of doubt, get out. Do not hesitate. Delays are always dangerous.
Do as the insiders do: If they can not get what they want, they take what they can
get; if the market will not take what they have to offer, they offer what it will take; if
the market will not go their way, they go its way. A wise man changes his mind, a
fool never.” [13]
“It is well for any trader to remember that when he makes a trade, he can be
wrong. Then how can he correct that mistake? By putting on a stop loss order and
taking a small loss. Unless a man knows the risk he is going to take and how much of
his capital he can risk on a trade, he should never start speculating. Because without
knowing these fundamental rules, sooner or later the unexpected will happen and he
will go broke. It is not my object in writing this book after 45 years experience, to
paint a rosy picture of an easy way to get rich, because there is no easy road to
riches. My object is to tell you the truth and give you practical rules that will work if
you put in the time to study and have the patience to wait for opportunities to buy
and sell at the right time, you can make a success. Every man takes out of life just
exactly according to what he puts in. We reap just what we sow. A man who pays
with time and money for knowledge and continues to study and never gets to the
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point where he thinks he knows all there is to know, but realizes that he can still
learn, is the man who will make a success in speculation or in investments. I am
trying to tell you the truth and give you the benefit of over 45 years of operating in
stocks and commodity markets and point out to you the weak points which will
prevent you from meeting with disaster. Speculation can be made a profitable
profession. Wall Street can be beaten and there is money operating in commodities
and the stock market if you follow the rules and always realize that the unexpected
can happen and be prepared for it.” [14]
“I feel I cannot repeat too many times the value of using stop loss orders because it
is the only safety valve to protect the investor and trader.” [15]
Only time will tell what meaning and value Gann’s words have for us today. As Gann
himself said,
“Time is the great factor that proves all things.” [16]
Endnotes
[1] http://www.safehaven.com/MidWeek/MidWeek121201PF.htm
[2] For the most amazing account of trading I recall having ever read, see the 1909
article, which has become something of a classic among Gann devotees, entitled:
“William D. Gann: An Operator Whose Science and Ability Place Him in the Front
Rank; His Remarkable Predictions and Trading Records.” http://
www.webtrading.com/gannarticle1.htm
[3] Gann, W. D., The Tunnel Thru the Air, 1927, p. 83.
[4] Gann, Wall Street Stock Selector, 1930, p 9.
[5] http://www.americaslibrary.gov/pages/jb_0824_goldlost_1.html
[6] Gann, op. cit., p. 4.
[7] http://www.americasrevolution.com/page1027.html
[8] Gann, The Tunnel Thru the Air, 1927, pp. 75-76.
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[9] Gann, Wall Street Stock Selector, p. 7.
[10] Investor’s Business Daily Guide to the Markets, New York: John Wiley & Sons,
Inc., 1996, p. 59. See also the chart for the 1930s and those that precede and follow
http://averages.dowjones.com/jsp/industrialAverages.jsp .
[11] Gann, New Stock Trend Detector, 1936, pp. 136-137.
[12] ibid., pp. 24-25.
[13] Gann, Truth of the Stock Tape, 1923, p. 37.
[14] Gann, 45 Years in Wall Street, 1949, pp. 121-122.
[15] Gann, Wall Street Stock Selector, p. 20.
[16] Gann, The Tunnel Thru the Air, 1927, p. 78. Gann’s foundational belief in tech-
nical analysis was that: “Time is the most important factor of all and not until suffi-
cient time has expired does any big move start up or down. ... At the end of any
important movement – monthly, weekly or daily – TIME must be allowed for
accumulation or distribution or for buying and selling to be completed.” Gann, How
to Make Profits in Commodities, 1951, p. 56. “When the time cycle is up, neither
Republican, Democrat, nor our good President Hoover can stem the tide. It is a
natural law. Action equals reaction in the opposite direction.” Gann, Wall Street
Stock Selector, from appendix “1929 Annual Stock Forecast,” p. 17. “The Bible says
‘There is a time for everything.’ All the laws of Nature teach this. There is a time to
sow and a time to reap. The four seasons of the year teach us that there is a reaping
time and a sowing time, and that we can not reverse this order of Nature’s laws.
Man does not try to grow oranges on Greenland’s icy mountains; neither does he
expect to cut ice from the tropical rivers in Florida, because it is out of season, time,
and place. It is the same with the stock market. There is a time to buy and a time to
sell, and when this time comes, neither bunches of bears nor bevys of bulls with hot
air, hope, optimism, extreme pessimism, depression or bad reports, can force prices
above or below the zones of Supply and Demand, out of season. You must learn to go
with the tide, and not against it. Discern the signs of the times, and do not get caught
in the undertow when the tide is flowing out. Those who hesitate and are late in
buying or selling in the last stage invariably have to take losses.” Gann, Truth of the
Stock Tape, p. 19.
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Articles The Simpleton’s
King’s Watch
Fibonacci
And Trading Ranges
Spreads
by KingCAMBO
Quiver: Enthiatic
Charts 2
Fibonacci finds its way all through nature, human na-
ture, price movements, time movements, cycle rota-
What Gann Said About tions and elsewhere.
1929
In the first few issues of this magazine, you were given
a very in depth discussion and a thorough Fibonacci
Tuning up Your primer by Enthios. Those articles are rich in informa-
Workspace tion and should be kept in every trader’s notebook.
I continue to receive email and private requests for help

in understanding the intricacies of Fibonacci trading. In
this workshop, I want to blow the intricate and finer
Join us live in our Trader details of Fibonacci completely out of the water. The
Forum. www.kingcambo.com reason being that all you traders who come to me and
say that the concept of Fibonacci is fine, but that memo-
Technical Analysis rizing it is another matter. The most common question I
Workshops: get on this subject is, “Tell me King, how do I trade by
this?”
Simple Fibonacci
Position Paper And that is a fair and practical question. It is one thing
to grasp a technique conceptually, but more and more, I
am finding that traders want a simple and functional
way to put the ideas into immediate use. So with that in
mind, this column will illustrate the absolute basics you
can immediately trade by. The Fibonacci purists
amongst you will probably pummel me with the micro-
scopic details I leave out. The real traders amongst you
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should be able to walk away with some very simple trading strategies you can
implement right here, right now. In the following discussion on Fibonacci ranges, the
content is timeless and therefore current. The examples cited are from summer of
2001. Don’t be confused by the data and prices. It is the rules that are important.
Here we go…
I’ve shown now in the earlier articles the basics of Market Structures, acting on the
Market Structure Triggers, as well as, Market Structure Failures. And I’ve demon-
strated the basics of trend confirmation using Three Price Break.
The magic of Fibonacci has been explored with Enthios, and now it’s time to take
these methods and forge them in to a really useful trading tool.
Market Structures, Three Price Break and Fibonacci all find synergy when I apply
them to the idea of “Trading Range.”
Trading Range is simply the area that lies between two significant Market Struc-
tures. It’s the area between the current top and the current bottom. The high of a
Market Structure High minus the low of a Market Structure Low equals: Trading
Range.
How I make use of that “range,” falls right back to basic and pure Fibonacci.
I remind you again now- I claim no authorship to these concepts. When I speak of
Trading Ranges, these are nothing more then Fibonacci retracement and growth
ratios.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
Figure 1
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
The above example is a Daily Basis chart of JNPR from the spring of 2001.
1. A Market Structure Low forms on April 5th
2. A Market Structure High forms on April 23rd
3. The high of the MSH – the low of the MSL = Trading Range
There is a MSL on April 5th the low of which was 28.60. A MSH formed several
weeks later On April 23rd, the high of which is 69.50.
“Trading Range” is simply the area that exists between two important Market
Structures. So, in this example MSH (69.50) minus MSL (28.60) = Trading Range
(40.90).
Now that I know the Trading Range for JNPR, what I need is a means for putting
this information to immediate practical use.
In the Fibonacci primer, Enthios showed us that price movements take place over
five waves, followed by a three smaller wave extension (labeled as a,b,c), the exten-
sions moving in a counter direction to the dominant trend.
When I talk about the four primary trading ranges that I am concerned with, I’m
referring to primary Ranges 1 through Range 5, and where they occur within the trad-
ing range itself. For my style of trading, this is what I like to concentrate on.
Back to that Daily basis chart of JNPR, I want to think about how the trading range
of $40.90 might help me find support and resistance areas:
By using basic Fibonacci retracement and growth ratios now and using what is my
known trading range of 40.90, I can expect to find the support by plotting each
wave using the high of MSH like this:
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
MSH MSL TR R1 R2 100% Range Pivot R3 R4 R5
69.50 28.60 40.90 53.88 44.22 28.60 12.98 3.32 N/A
• Range 1 (-38.2%) support is 53.88
• Range 2 (-61.8%) support is 44.22
• Previous MSL SUPPORT (-100%) support is 28.60
• Range 3 (-138.2%) support is 12.98
• Range 4 (-161.8%) support is 3.32 (don’t laugh – look at what became of CMGI)
• Range 5 (-261.8%) support will not occur of course in this case, because JNPR
would be de-listed and probably bankrupt by then.
My “support” areas are going to be the expected downdrafts or short targets.
By using basic Fibonacci ratios of what is my known trading range of 40.90, I can
expect to find the resistance pivots by plotting each wave using the low of MSL like
this:
MSL MSH TR R1 R2 100% Range Pivot R3 R4 R5
28.60 69.50 40.90 44.22 53.88 69.50 85.12 94.78 135.68
The resistance pivots are going to occur now, in Fibonacci growth ranges now begin-
ning from the MSL – in this case 28.60:
• Range 1 (38.2%) resistance is 44.22
• Previous High (100%) resistance is 69.50
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
My “resistance” areas are going to be expected updrafts or long targets.
The resistance pivots are going to occur along the five possible range pivots UP from
the MSL. Support pivots are going to occur along the five possible range pivots
DOWN from the MSH.
Support and resistance also always occur at previous MSL and previous MSH areas.
That is because they would not be a previous Market Structure unless price move-
ment had already stopped there.
I now know if JNPR is currently trading in an up range, where along the trend I can
expect it to stall, and maybe even reverse. I also have an exit strategy before I
have entered the trade.
Likewise, if JNPR is currently trading in a down range, where along the trend I can
expect a bounce if not a complete reversal. This also gives me the exit strategy if I
am trading short.
This is a working understanding of “Trading Range”. Let’s explore the idea in

greater depth.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
Trading The Four Principal Types Of Trading
Ranges
• Post/ Pre Market Trading Range (PTR)
• Immediate Trading Range (ITR)
• Greater Trading Range (GTR)
• Dominant Trading Range (DTR)
I am going to use Futures and the Indexes to explain the idea of Trading Range. I
have chosen to do this only because it provides easier and better examples. Students
ask and traders ask me pretty much daily, “If it works for futures, will it the same
work for stocks? How hard is it to trade futures?”
Stop thinking that way NOW. Everything taught in these pages works for STOCKS.
The futures are a contract for where the NASDAQ or S&P are going to be three
months out from now. It is therefore a bet on where stocks will be three months
from now. Make it a practice to incorporate everything I say about futures into how
you view and evaluate trades in stocks.
These methods work with any instrument, from CHKP to JNPR to pork bellies to
OEX calls, OEX puts, puts and calls on the stocks you trade, penny stocks or blue
chips.
Post/Pre Market Trading Range: (PTR)
Post-market to pre-market is a tricky area because of the lack of liquidity, low

volume and erratic news event driven spikes. After 4PM you have earnings an-
nouncements and before 9:30AM you have economic announcements, rate cut
rumors or even an unscheduled cut, and often times corporate warnings, or just
plain media hype.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
I want to be cognizant of what occurred overnight and pre-market because I need a
means of expecting what may occur in the first three 13-min intervals of the
market’s open. The reason for this is that, it isn’t possible to determine a day’s
Immediate Trading Range (ITR) until both an intra-day MSL and intra-day MSH
have formed. This usually takes the better part of the first hour of trading. Some-
times longer.
What happens in this “Third Market” is it opens with the GLOBEX futures trading
at 4:45PM and runs to the next day @ 4:15PM. But I trim that range down to from
4:45PM to the open of the normal market the next day at 9:30AM. This is what I
think of as “PTR.”
Here is an example of the PTR from Wednesday July 18th to the market open of
Thursday July 19th. I choose this because it had an abnormally wide PTR.
When charting PTR, I always use 13-minute ALL SESSIONS charts to eliminate the
“noise” that comes from low liquidity spikes in intervals overnight. You could also
opt to use a 21min chart, 34min or even a 55min. (As long as it’s a Fibonacci
interval!)
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
Figure 2
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
1. The PTR Market Structure Low formed at 5:24PM on 7/18/01. The low of
this MSL is 1655.00
2. The PTR Market Structure High formed at 9:00AM the next morning. The
high of this MSH is 1724.50.
3. Post/ Pre-Market Trading Range (PTR) is established by subtracting MSH-

MSL. In this case 1724.50 – 1655.00 or 69.5 points. *It’s very important to
note that when computing trading range that it is NOT the high and the low
that is used, it’s the high of the MSH and the low of the MSL that’s
used.
I use only existing Market Structures for trading range. An example would be if at
the time trading was occurring higher then the MSH that has formed, but no “new”
Market structure had formed. Use the highest existing MSH and the lowest existing
MSL at the time you are making the calculations.
4. Market opening candle on 7/19/01.
I can now plot the expected pivots for both support and resistance using the Fi-
bonacci growth ratios previously outlined against our known PTR of 69.5 points:
MSH PreviousMarket
PTR R1 R2 R3 R4 R5
MSL Structures
1724.50 Support 1698.14 1681.86 1655.00 1629.14 1612.86 1543.86
1655.00 Resistance 1681.86 1698.14 1724.50 1750.86 1767.14 1836.14
*These calculations can be made live using our online Trading Range Calculator at
http://www.kingcambo.com/rangecalculator/
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
I have entered in the MSH and MSL data for overnight. I now can see the areas of
support are likely to be 1698.14, 1681.86, 1655.50, 1629.14, 1612.86 and then
1543.86 in descending order.
Resistance will be 1681.86, 1698.14, 1724.50, 1750.86, 1767.14 and then 1836.14 in
ascending order.
These will be my first projections as to where we might be headed in the first hour of
trading, until the days Immediate Trading Range (ITR) is established. Let’s take a
look at what actually transpired:
Figure 3
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
1. The market opens ABOVE our first two resistance projections of 1681.86,
1698.14, but BELOW overnight resistance of 1724.50. Accelerated buying
occurs when a MSH (in this case 1724.50) is taken out.
2. The MSH fails in this case by 9:43AM. Our next projected up wave is a target
of 1750.86. We see a first MSH form at 9:56AM – however it fails 3 candles
later. Look where the days real ITR Market Structure High forms:
3. The real ITR/MSH forms at 11:14 AM at 1750.00.
4. The ITR/MSL tries to form and fails.
5. The day’s real Immediate Trading Range MSL forms at 1686.00.
This is why I treat PTR as its own separate session, to plot what may happen BE-
FORE the day’s Immediate Trading Range – ITR – can be established.
Immediate Trading Range: (ITR)
A day’s Immediate Trading Range then is the range between the strongest market
structures that form on an intra-day basis. For identifying where these occur, I
prefer to use 3-min data. The reason being, 13-min data can often take most of the
day to develop, so it isn’t as useful to an active trader. Additionally, 13-min trends
are what we use to calculate Greater Trading Range (GTR), which is the stronger
trend, and will be dealt with next.
Let’s take a look now at the early trading for Friday July 20, 2001.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
Figure 4
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
As I did with PTR ranges, I will now want to plot support and resistance pivots for
the Immediate Trading Range (ITR) using the same parameters:
MSH ImmediateMarket
ITR R1 R2 R3 R4 R5
MSL Structures
1703.00 Support 1690.78 1683.22 1703.00 1658.78 1651.22 1619.22
1671.00 Resistance 1683.22 1690.78 1671.00 1715.22 1722.78 1754.78
I can now plot my ITR Support pivots initially as 1690.78, 1683.22, 1671.00,
1658.78, 1651.22 and 1619.22.
Likewise, I can anticipate ITR Resistance pivots as being 1683.22, 1690.78,

1703.00, 1715.22, 1722.78 and 1754.78 respectively.
I am expanding now to a 13-min chart to show a true picture of what transpired:
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
Figure 5
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
Now, this is where things get interesting, if not downright amazing. I made my initial
calculations at 10:51AM because that was the first point I had the two necessary
Market Structures to form the ITR. Based on what I now have as “range,” my first
two projected support pivots are 1690.78 and 1683.22.
What happens approximately 20 minutes later? The first MSL forms exactly on
the 1683.00 projected ITR pivot.
Note also, that our initial MSH resistance of 1703.00 turned out to be resistance for
the entire day. The second attempt at higher highs fails at 1699.00 – in terms of
index points, basically a stone throw.
This idea of working with Immediate Trading Ranges (ITR) is a practical method of
giving yourself a road map for TODAY’S expected trading.
Now that I have mapped out both overnight and intra-day ranges, I always want to
be conscious of the GREATER TRENDS. These are, in order of importance: the
Greater Trading Range and the Dominant Trading Range.
Greater Trading Range: (GTR)
Greater Trading Range as its name suggests, is important because it defines Market
Structure levels and triggers over recent continuous trading sessions.
Remember that as a trader, I am a mere hybrid of everything I have learned. And

for my style of trading, I want to know where these Market Structures are occurring
across a continuous 13-min basis.
So I will use one 13-min chart, which contains three days of continuous intra-day
data. I eliminate from that chart any post or pre-market data to filter out the
“noise.” This is because I want my calculations based to give me pivots as an exten-
sion of ITR, as I explained above.
It is three (3) days (major Fibonacci) of thirteen (13) minute (major Fibonacci)
because everything I look at is with regard to Fibonacci.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
So let me start with a simple chart so I can show you what I am looking for:
Figure 6
With stronger trading ranges such as GTR and DTR, I am not so much trying to
pinpoint where intra-day moves are going to occur. What I am trying to do is know
beforehand where STRONGER resistance and STRONGER support is going to be.
And using the same formulas and ratios I used for pre/post market (PTR) and the
day’s Immediate Trading Range (ITR), I want to have these expected pivots plotted
clearly in my mind.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
MSH GreaterMarket
GTR R1 R2 R3 R4 R5
MSL Structures
1752.00 Support 1717.81 1696.69 1662.50 1628.31 1607.19 1517.69
1662.50 Resistance 1696.69 1717.81 1752.00 1786.19 1807.31 1896.81
So I know from these computed GTR ranges that my first three points of resistance
will likely occur at 1696.69, 1717.81 and 1752.00 with Range 3 at 1786.19. Range 4
and Range 5 are too far out at the moment to contemplate immediate use of.
I also know from the above GTR ranges that my first three points of support will
likely occur at 1717.81, 1696.69 and 1662.50 with Range 3 at 1628.31. Range 4 and
Range 5 are, again, too far out for immediate use.
Now, since I had the necessary MSL/MSH data available by 11:01AM on 7/19/01,
let’s take a look from that point forward to see what occurs:
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
Figure 7
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
All right now, let’s discuss these action points within the context of my GTR projec-
tions:
1. I know that the GTR Market Structure Low was established at 1662.50 on
7/18/01 (not shown above) and that the GTR Market Structure High of
1752.00 is established on 7/19/01. So I have the two necessary elements to
compute GTR and establish pivots.
2. My initial projected support range pivot was 1717.81. Where does the first
MSL form? It forms at 1719.00 at 12:32PM on 7/19/01. This is within one
index point of my GTR1 projection. In the context of major indices, one point
is a fraction, a hair if you will. If this were a dart game it would be so close to a
bulls-eye as to be heartbreaking. Again, I knew this potential support
information in advance, at 11:01 AM. This is the real value of understanding
Trading Ranges.
3. The real Market Structure Low for 7/19/01 forms at 3:08PM at a close of
1697.00. Note from the above calculations where my GTR2 support pivot
was; it was 1696.69. LESS than ½ index point from where the actual MSL
comes in. To re-emphasize here, I knew this four hours earlier at 11:01AM!
Armed with this information I will be looking for a bounce at a predetermined
price level. Prior to this MSL, there was an expected upward resistance level
(I often refer to as “MSH Congestion Zones”) projected at GTR2 also at
1717.81. At 2:42PM look where we hit the skids: 1716.50.
4. The next session, 7/20/01 opens lower and then peaks at 10:48AM at a close
of 1696.00 That is the same GTR projected support pivot that formed the
bottom in the prior session. Failed support now acting as current resistance,
again within less then one, index point.
5. At 2:29PM the second and final Market Structure High forms for the day.
This time with the exact same close of 1696.00.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
This is working with GTR. Its practical value is in knowing sometimes a day, or
days, in advance where congestion may form and where support may form in the
current day that I am trading.
Dominant Trading Range: (DTR)
Dominant Trading Range - is just that. By far the greatest trend, it is established by
the most dominant Market Structure High –and- the most dominant Market Struc-
ture Low. These of course are the strongest areas and boundaries of resistance and
support.
DTR is computed using Daily basis data only. To compute it I want to go back to the
major Fibonacci ordinal pivot of “89” to plot the dominant trend. I use 89 days for all
indices, stocks and the OEX. The only exception is made when I am plotting futures.
This is because futures contracts only trade in real volume, about two to two and
one half months out. For futures, I use the previous major Fibonacci ordinal interval
of “55” and if I can go longer than that, for instance towards the contracts expira-
tion, I do.
In all other instances for STOCKS and the major indexes use 89 days of data.
Let’s take a look then as far back as we can on the current futures contract for
September 2001.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
Figure 8
There wasn’t much trading or liquidity in this September contract really until April
30th. And even then, it is sporadic and noisy, even on a Daily Basis. The true market
structures don’t occur until much later. This chart goes back to early June, it is more
than the 55 days I know, but nevertheless it illustrates my point.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
1. The DTR Market Structure High is 2022.50 on June 8, 2001.
2. The DTR Market Structure Low is 1471.00 on August 22, 2001.
3. This is a MSL failure as I spoke of in earlier chapters.
MSH DominantMarket
DTR R1 R2 R3 R4 R5
MSL Structures
2022.50 Support 1811.83 1681.67 1471.00 1260.33 1130.17 578.67
1471.00 Resistance 1681.67 1811.83 2022.50 2233.17 2363.33 2914.83
So, my DTR resistance pivots for now are from the most recent close 1681.67 and
1811.33. I go only two waves out for now because bigger moves are entirely unlikely
and we can always look to them if some catalyst occurs. This is more often true for
indexes and futures thean it is for stocks. But, you see my point.
On the other hand, the DTR support pivots were 1811.83, 1681.671, 1471.00,
1260.33 in that order. All but my R3 had been tested and violated at that time. This
made that move to 1260.33 seem all the more likely.
I will have firmly in my mind now, that regardless if a strong wave of buying comes,
I am going to find some definite resistance for now at 1681.67. This would be an
enormous jump, and would take place over days or weeks.
I also know that because of repeated support pivot failures, the current trend is
very likely to take me as low as 1260.33 before I see strong support.
This is working with DTR. Knowing the STRONGEST points of resistance as well as
support.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
Mapping It Out Into Useable Perspective:
So I have before me all the tools of working with Trading Range. What I want to do
now is to set myself up for the coming trading session. I am going to use Thursday
September 6, 2001 to create a working example for you. Let’s assume we are in the
middle of the day, in this case 12:32PM (first MSL forms) so we can plot all four of
the principal ranges:
First, where are the futures and where are they going? I get this plotted every
morning:
MSH Support
Range R1 R2 100% RangePivot R3 R4 R5
MSL Resistance
PTR 1431.00 Support 1416.87 1408.13 1394.00 1379.87 1371.13 1334.13
PTR 1394.00 Resistance 1408.13 1416.87 1431.00 1445.13 1453.87 1490.87
ITR 1411.50 Support 1395.65 1385.85 1370.00 1354.15 1344.35 1302.85
ITR 1370.00 Resistance 1385.85 1395.65 1411.50 1427.35 1437.15 1478.65
GTR 1507.50 Support 1455.55 1423.45 1371.50 1319.55 1287.45 1151.45
GTR 1371.50 Resistance 1423.45 1455.55 1507.50 1559.45 1591.55 1727.55
DTR 2022.50 Support 1811.83 1681.67 1471.00 1260.33 1130.17 578.67
DTR 1471.00 Resistance 1681.67 1811.83 2022.50 2233.17 2363.33 2914.83
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
So now before me is a complete road map on where I believe the futures to be
heading for TODAY.
1.) I also want to know where the MAJOR averages are going to have range
pivots. COMPX, INDU and SOX.X, or others I may normally track: * there is
no PTR for the indexes themselves, just on the contracts for those indexes
Nasdaq COMPX
MSH Support
Range R1 R2 100% RangePivot R3 R4 R5
MSL Resistance
PTR N/A Support N/A N/A N/A N/A N/A N/A
PTR N/A Resistance N/A N/A N/A N/A N/A N/A
ITR 1753.83 Support 1737.01 1726.83 1709.81 1692.99 1682.61 1638.59
ITR 1709.01 Resistance 1726.83 1737.01 1753.83 1770.65 1781.03 1825.01
GTR 1836.19 Support 1791.10 1763.24 1718.15 1673.06 1645.20 1527.16
GTR 1718.15 Resistance 1763.24 1791.10 1836.19 1881.28 1909.14 2027.18
DTR 2264.58 Support 2093.87 1988.41 1817.70 1646.99 1541.53 1094.65
DTR 1817.70 Resistance 1988.41 2093.87 2264.58 2435.29 2540.75 2987.63
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
DOW - INDU
MSH Support 100% R5

Range R1 R2 R3 R4
MSL Resistance RangePivot
ITR 9958.10 Support 9907.76 9876.65 9826.31 9775.97 9744.86 9613.07
ITR 9826.31 Resistance 9876.65 9907.76 9958.10 10008.44 10039.55 10171.34
GTR 10178.64 Support 10066.91 9997.89 9886.16 9774.43 9705.41 9412.93
GTR 9886.16 Resistance 9997.89 10066.91 10178.64 10290.37 10359.39 10651.87
DTR 11196.53 Support 10689.47 10376.20 9869.14 9362.08 9048.81 7721.42
DTR 9869.14 Resistance 10376.20 10689.47 11196.53 11703.59 12016.86 13344.25
Philadelphia Semiconductor Index – SOX.X
MSH Support 100%

Range R1 R2 R3 R4 R5
ITR 528.56 Support 520.20 515.03 506.67 498.31 493.14 471.25
ITR 506.67 Resistance 515.03 520.20 528.56 536.92 542.09 563.98
GTR 572.4 Support 549.84 535.91 513.35 490.79 476.86 417.81
GTR 513.35 Resistance 535.91 549.84 572.40 594.96 608.89 667.94
DTR 697.04 Support 594.34 633.56 697.04 760.52 799.74 965.92
DTR 530.86 Resistance 633.56 594.34 530.86 467.38 428.16 261.98
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
My road map is now complete. I am visibly aware of not only the futures, but the support
and resistance pivots of my major indexes. So I tie it all together now into today’s game
plan, which for me is usually the NQ or ES E-mini contracts and only one focus stock. QCOM
is usually good for ranges so I load that up to complete my trading plan.
QUALCOMM Incorporated - QCOM

MSH Support 100%
Range R1 R2 R3 R4 R5
PTR 53.85 Support 53.32 52.98 52.45 51.92 51.58 50.18
PTR 52.45 Resistance 52.98 53.32 53.85 54.38 54.72 56.12
ITR 54.96 Support 53.05 51.88 49.97 48.06 46.89 41.90
ITR 49.97 Resistance 51.88 53.05 54.96 56.87 58.04 63.03
GTR 58.50 Support 55.90 54.30 51.70 49.10 47.50 40.70
GTR 51.70 Resistance 54.30 55.90 58.50 61.10 62.70 69.50
DTR 68.87 Support 61.22 56.50 48.85 41.20 36.48 16.46
DTR 48.85 Resistance 56.50 61.22 68.87 76.52 81.24 101.26
So this was my trading plan, clearly in front of me on September 6, 2001. Some

notes here so you can compare with what actually occurred:
· The Nasdaq NQ E-Mini contracts - The Immediate Trading Range (ITR)

Market Structure High that formed later that day came in at 1395.00. My R1
resistance projection for ITR was 1395.65 The Market Structure Low that
formed later that day was at 1372 and then failed. This was right above or
our initial PTR MSL of 1370.00.
· COMPX - The Immediate Trading Range (ITR) Market Structure High that
formed later that day on 1727.03 – slightly above the projection of 1726.83 -
The Market Structure Low that formed later that day was at 1709.88 and
then failed. This was right off the 100% range pivot established earlier.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
· INDU - The Immediate Trading Range (ITR) Market Structure High that
formed later that day on 9896.05 – about 11 DOW points of the R2 resistance
projection. There was not a subsequent Market Structure Low that formed
this day.
· SOX.X - The Immediate Trading Range (ITR) Market Structure High that
formed later that day on 523.70, between the R1 and R2 resistance pivots.
Not much to write home about. There was not a subsequent Market
Structure Low that formed this day.
· QCOM - The Immediate Trading Range (ITR) Market Structure High that
formed later that day on 50.93 – there was beneath projected resistance
pivots. There was not a subsequent Market Structure Low, in fact it sold all
the way down to 48.40 on the closing candle. The R3 projected support was
48.03.
Okay then. I explained the idea of “Trading Ranges.” I hope I have also demon-
strated the value of using them in your master-trading plan.
As a trader, especially in our current market environment, you are no better off
than the student pilot who is trying to land his airplane after getting caught in dense
fog.*
Think of Trading Range, and the Fibonacci based Range Pivots as your ILS, your
instrument landing system. If you learn and practice these with discipline, they will
guide you right to the center of the runway, every time.
*I offer this analogy because it is a true experience from my younger and more
reckless “Sky CAMBO” days.
KingCAMBO’s
Summer School
Program info
Hands on instruction starting in late June in our private study channel with charts and
voice. The seminars will run approximately 3 hours per day for 1 complete week. I am
thinking 11:30 AM until 2:00 PM for 5 straight sessions. Topics are going to include
detailed explanation and live trading examples of the methods I wrote chapters about
for my book, and those you have seen in TrendTimes Magazine.
Who Should Sign up

The course will be mainly geared towards new traders, or traders that feel they have
the basic idea but need some mentoring for follow through. This will also be good for
middle of the road traders who think they already have it, but want to hone their skills.
Because it is going to be hands on mentoring, I am going to limit class size so I can give
you my full attention during the deadzone hours.
I will have the pricing available later next month when I finalize my syllabus and course
handouts in the next few weeks!
Interested? Get more info...

If you are interested in getting on the reservation and/or waiting list, please send an
email to support@kingcambo.com and I will send you the complete information
when I have it ready.
Articles A Position Paper
King’s Watch by KingCAMBO
We have discussed in several past issues of this maga-

Spreads zine different kinds of timing cycles, Gann cycles and
others. I want to take some space in this week’s issue to
talk briefly about “business cycles.” When I say
Quiver: Enthiatic business cycle, I don’t want to claim to be talking about
Charts 2 economic cycles —as that term is generally thrown
around by pinheads in the media, or understood in an
academic sense. I want to take a look at a more imme-
What Gann Said About diate view of how the current “business cycle” might be
1929 playing out for this market in the remainder of 2002
and looking forward to 2003-2005.
Tuning up Your In thinking about this article, I studied briefly the

Workspace works of Joseph Schumpeter in his “Business Cycles” of
1939, and other articles and essays of his that you can
find on the web. I also did some reading on Clifford
Charles Matlock’s “Theory Of Endeavor Rhythms” - a
1977 publication from his Developmental Cycles
Research Project.
Technical Analysis Schumpeter mainly concentrated on three main cycles,

Workshops: those were:
Simple Fibonacci • The 40 month cycle

Position Paper
• The 10 year cycle
• The 60 year cycle
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Those of you who are already enjoying Gann’s work on cycles are grinning here, but
more on Gann elsewhere.
Business Cycles, as both Schumpeter and later Matlock treat, occur in four phases
and the first phase is always preceded by a major innovation. For the longer and
more major cycles, we can look to obvious major innovations —i.e. the telegraph, the
steamship, the railroad, electricity, the automobile, the airplane, the computer, and
so on. Each one of these innovations preceded a major beginning, or “phase 1” of
major business cycles and major upswings in the stock market.
Now, before I get ahead of myself, let’s look at how the four phases of any cycle
comprise and complete themselves.
Schumpeter’s four phases were:
*Innovation provides the impetus for the beginning of a cycle – and then:
1. Prosperity
2. Recession
3. Depression
4. Revival
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Figure 1: Schumpeter’s four phases
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You can see that each phase of a business cycle has four axis, or cardinal points if
you will. When innovation occurs, the cycle is at equilibrium or at a mean point. It is
in balance at the beginning. When it reaches a peak, it is then at an extreme —so it is
out of balance. As the rewards of the prosperity or boom are “reaped,” the cycle falls
from its peak, back into balance or equilibrium again.
And this is where the real trouble begins. I say that because you cannot go back-
wards in a true cycle. You can only go forwards to reach a new cycle. This is a law of
nature that destroys 98% of all traders. Common sense would dictate that once a
cycle, or a market reaches equilibrium a second time, price should go right back to a
peak again, right? WRONG!
As you can see, the only way to get back to new peaks is to complete the full cycle. If
you want a corny example, go howl at the moon. A lunar cycle cannot go from a new
moon to a full moon, and then go to a waning moon and then reverse again right
back to full moon.
It has to follow its natural order of new, waxing, full, waning —-à back to NEW.
Matlock’s four phases, which are based upon these, but altered and modified a bit
are:
1. Endeavor
2. Attainment
3. Withdrawal
4. Regeneration
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Figure 2: Matlock’s four phases
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In Matlock’s view, Endeavor is the period of running wild with the possibilities
created by the new “innovation”, so phase one.
Attainment is reaping the rewards brought on by the endeavor phase of the cycle,
phase two.
Withdrawal is simply the “party is over” phase, or phase three. Like it or not, it is
the phase our current stock market is in now, as I will demonstrate for you in the
next few paragraphs below.
Regeneration then is the gathering up of new forces and creativity for the next
“innovation.” It is the fourth and final phase that will precede the next phase one.
There is also a regular Joe plain English way of labeling a given business cycle and
that would be: Schumpeter also labeled the “four-phases” of a cycle as
boom- recession-bust-recovery.
Starting from the mean, a boom is a rise which lasts until the peak is reached; a
recession is the drop from the peak back to the mean; a bust is the slide from the
mean down to the trough; a recovery is the rise from the trough back up to the
mean. From the mean, we then move up into another boom and thus the beginning
of another four-phase cycle. In a sense, any cycle of whatever duration can be de-
scribed as going through these four phases - otherwise the fluctuations cannot really
be described as “cycles.”
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Figure 3: Schumpeter restated
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Now that we have some foundation for a discussion, let me delve into why I think
this might be interesting to those of us trading today. Getting back to the point that
all new cycles are preceded by a major innovation, I think we can agree that the last
“major innovation” was the Internet. And even though the Internet has been with
us since the early 1970’s in academia (earlier for the military) it wasn’t of much use
to the general public until this past decade.
We all have our fond memories of how we came to be on the “net. ” I started mess-
ing around with it in 1992 and 1993. At that time it was text based, and there wasn’t
much to do really. Searching the web was a text-based pursuit, using engines like
GOPHER and LYNX. E-mail was also a text based task using PINE or ELM, etc.
Searching the WWW, as we now know it, was done through only one graphical inter-
face at the time known as “Magellan.” That web browser was developed by the
research department at University Of Champaign-Urbana Illinois. It was a very,
VERY slow toy, and sometimes took 45 minutes to load a single web page.
And then comes the year 1995, and the introduction of the Netscape to the general
marketplace. The creator of Netscape had been on that University of Illinois re-
search team, and had piked code from them, and quit school to launch Netscape.
Two years later of course, Billy Gates piked it from him and we all know the story
from there.
It is also interesting to note that at this same time, even though AOL was out and
was a graphical version of the Internet, AOL wasn’t really on the Internet at all. At
that time, AOL was self-contained to its OWN service only, much like Compuserve
and other dinosaurs since slain. AOL was the last to actually get connected to the
World Wide Web –and- well the rest is history. So then, what exactly was my point?
Using the principles of “business cycles” as presented above, let’s use not the
Internet per se, but let’s use Netscape as the factor that brought the masses onto
the Internet initially, followed by Internet Explorer a tad later. (Even though Gates
and crew wound up destroying Netscape and establishing world wide domination
over the Internet.)
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It was during this period of 1995-1997 that the masses started piling on (or in) to
the “Internet.” This is what we can identify as the innovation part of the cycle – that
preceded the “boom” phase. So, cycle begins in 1995. In 1997 , 1998 and 1999 we
had the EXPLOSION of Internet use, Internet commerce and dot-coms, which we
now can only sadly reflect on as dot-bombs. This are also the three years that the
majority of you here today “got connected” to the net.
We can all agree that the absolute peak of this business cycle occurred in early
2000. AOL took out Netscape the earlier fall, stock market prices reached the all
time levels of insanity, and by March 2000 we were on our way down.
Where are we now?
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We are currently completing right now the second phase of the cycle that began in
1995 as explained above. I think we can all agree that early 2000 brought the
absolute tops as we currently know them. And although we have had many at-
tempts to rally back to that peak, each and everyone of them failed miserably.
It is a matter of fact now, that the balance of 2000 and all of 2001 was the recession
phase as shown in the prior examples. Just look at weekly charts of the indices and
try to argue this point?
And where does this all leave us? We have to complete Phase 3 and Phase 4, of the
cycle that began in 1995 to get back to a new Phase 1 – do we not?
That said, 2002 looks like it might try to buck the cycle many times this year, as we
saw it do in late February and March. It will not surprise me if it continues to try
and buck it. And buck it, it might- but it cannot break it, nor can a true business
cycle be reversed and turned backwards. If that were to take place, no “new cycle”
could emerge.
In conclusion – our current cycle is going to take us into 2005. This is interesting in
that this gels with, the 10-year cycle that Schumpeter, as well as Gann, focused on–
as you have read in my earlier articles.
Also important here is what Gann teaches about bear markets and bear market
cycles. In his book “Truth Of The Stock Tape” and also his private courses, Gann
states that bear market cycles run their course in definite patterns:
• 2 years down
• 1 year up
• 2 years down
Taking winter and very early spring of 2000, and considering, Schumpeter as well
as Gann, it all leads back to the same place —2005 before we end this business cycle
and commence a new one. This is also when many companies have already pro-
claimed to be the scheduled time of “generation 2 of the Internet,” as well as major
advances in chips and technologies. Go figure!
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How can you trade this? Carefully, for the rest of 2002. As explained above, I
expect many a fluctuation against the major cycle.
All right, I hope you enjoyed this diversion into other aspects of cycles. We will
continue exploring more about cycles, especially Gann’s writing on time cycles, in
future editions of TrendTimes.
Happy Trading!
Get the Info Advantage
www.KingCambo.com/bookstore
Beyond
Candlesticks
by Steve Nison Japanese
Candlestick
Charting
Techniques
by Steve Nison
Truth of the Stock Tape

by W.D. Gann Reminiscences of a
Stock
Operator
by Edwin LeFevre
@
Articles Tuning up Your
King’s Watch
Workspace
Get the most out for your PC

Spreads
by Hellcat
Quiver: Enthiatic As a professional trader, you most likely depend on

Charts 2 numerous resource hogging applications throughout the
trading day. With your income on the line, making sure
that your system doesn’t crash and burn on you during
What Gann Said About the day is crucial.
1929
To get the most out of your computer, you need to
manage your hard-disk space. A more productive
Tuning up Your workspace is a streamlined one.
Workspace
Here are a few simple tips to tune up your PC:
Defrag
Forum. www.kingcambo.com A simple place to start is by defragmenting your hard
drive regularly. Adding to and removing data from your
Technical Analysis computer over time leads to a “fragmented” hard drive.
Workshops:
When fragmentation occurs, your computer begins to
slow down because it takes longer to find all of the
Simple Fibonacci information. Defragmenting helps reorganize your hard
drive into continuous blocks and thus helps to speed up
Position Paper system performance.
1. First, close all programs running on your

computer. If a program attempts to write to the
area, then disk defragmenter will start over.
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2. Go to My Computer, right click on the
C: drive, and select Properties.
3. A new window will pop up. Click on the Tools tab.
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4. Click on the Defrag Now button and wait for your computer to begin
working.
I recommend defragmenting once a week or when you notice a degradation in per-

formance.
Get Rid of Useless Programs
Another place to attack is unused programs. When you clear out those long forgotten
programs from your PC, you can minimize hard-disk clutter and create more disk
space, which can provide better performance.
To Uninstall a Program:
1. Many programs come with their own uninstall system and to use that go to
the Start Menu and select Programs.
2. Select the program folder of the program you want to uninstall and look for
an uninstall program.
If the program that you wish to remove does not come with its own uninstall
program, use the Windows Uninstaller:
1. First, go to the Start Menu, and then choose Settings.
2. Click on Control Panel and then double click on the icon labeled Add/
Remove programs.
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3. Select the program to be removed from the list of programs.
4. Finally, click the Add/Remove button.
Although the two previously mentioned methods will do the trick, a professional
uninstaller software such as Norton CleanSweep from Symantec
(www.symantec.com) is far superior at removing unused programs. CleanSweep
removes applications more completely than the Windows Add/Remove Programs
utility, which may leave many little fragments of files on your computer.
Not efficient!
As a plus, the software includes a safe cleanup mode (for the PC-challenged) that
protects against accidental file deletions.
Recover Memory Leaks
Windows 98 is notoriously bad with memory leaks. Programs such as Memturbo

(www.memturbo.com) can be useful in monitoring and recovering available RAM.
One caveat, the effectiveness of the program depends on how you set the param-
eters. You have tweak and re-tweak the software to achieve optimal available RAM
levels before it can really be useful.
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Here is a snapshot of MemTurbo:
Upgrade that Clunker

So your computer is still crashing every other hour, huh? The reality is no matter
how many times you take that Oldsmobile into the garage, it will never come out as
a lean mean driving machine. Time to upgrade.
Don’t have the time or the inclination to tinker with your old PC? Time to Upgrade.
You can get a very good price on a great system right now by shopping around.
Wouldn’t you agree that it’s worth the cost of one bad trade due to a computer
crash?
Subscribe Now!
(click here)
About Trend Times
KingCAMBO’s Trend Times magazine is published online twice monthly
and features a wide variety of concepts, strategies, and thinkings of
full time professional traders.
This magazine is about traders teaching traders. What you will find
here is a wealth of information about expanding your trading skills, as well
as new approaches to trading you may not have considered.
What you will not find are hot stocks to watch, strong buy
recommendations and piker front-running trade recommendations.
Pricing
We have committed ourselves to keeping editions fairly priced. Quarterly
subscriptions will be $34.99 for 6 full issues; so about 5 bucks and change
every 2 weeks.
Subscriber Extras
All subscribers to this magazine will have free access to the general
discussion channel at our live online forum:
http://www.kingcambo.com/members/chat
You will also be entitled to review nightly article updates to our Fear &
Loathing column, review end of day trading recaps, and some other good
stuff.
Subscribe Now.
http://www.kingcambo.com/trendtimes
KingCAMBO’s Trend Times © 2002 King Cambo Ltd. All rights reserved.

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May 30, 2002 Volume 6

Articles KING’S WATCH

Mr. Johnny On The Spot Homeland Security with

Today we test for the third time in 2002 that magical

NASDAQ CURRENT TREND:

OEX CURRENT TREND:

You will see different names for all of these strategies,

Today we will concentrate on the Directional Spread.

Vertical Spreads or Combinations

The Bull Spread

The Bear Spread

First: Let’s distinguish Credit from Debit spreads

Second: Note the criteria for distinguishing a spread’s “bullishness” or “bearishness”

What determines whether a spread is bullish or bearish is not whether it is com-

The Bull Call Spread

Let’s look at an example:

In the above example: ($50-$40) – ($5-$3)=($10)-($2) = $8

In our example: ($40) + ($5-$3)=(40) + ($2)= $42

The Bull Put Spread

*Max Loss: ($55-$50) – $2= $3

*Breakeven: Remember, this is a bull spread, even though it is composed of puts.

There are various reasons for trading a Bear Spread:

2- The trader might have a specific price target on the underlying.

Buy 1 ABC June 95 Call @ $3 debit

Here’s the math: $95-$90 = $5

The Bear Put Spread

Buy 1 ABC JAN. $80 put @ $5 paid

Long 1 ABC JAN. $80 put @ $5

The most we can make on this spread is $7.

*Breakeven: Higher Strike price minus net premium paid:

3- One-to-one verticals are typical and have limited risk/reward profiles.

4- A spread’s maximum value is defined as the difference of the strike prices of

Register Early and SAVE

Click here NOW:

or Call 800-272-2855 ext. S86

Figure 1: Fibonacci Seed Wave Targets for EN chart

Figure 2: Fibonacci Retracement Targets for EN

A word about Tick Charts:

Figure 3: Constant Tick Charts

Although he died more than four-and-a-half decades

Gann was active in the markets over a period of about

2001: Between mid-May and mid-September 2001, the Dow Jones

Let us try to intuit where in “the cycle” we might be today.

He then goes on to say:

“HOW TRADERS AND INVESTORS WERE FOOLED IN 1930 TO 1932 PANIC

“Time is the great factor that proves all things.” [16]

[4] Gann, Wall Street Stock Selector, 1930, p 9.

[6] Gann, op. cit., p. 4.

[11] Gann, New Stock Trend Detector, 1936, pp. 136-137.

[12] ibid., pp. 24-25.

[13] Gann, Truth of the Stock Tape, 1923, p. 37.

[14] Gann, 45 Years in Wall Street, 1949, pp. 121-122.

[15] Gann, Wall Street Stock Selector, p. 20.

Chart Formula and

Color Studies Tabs & more..

If you have a need to search

The powerful Alert System

the Scanner tool will do the

plot your prices using the

Studies lets you graph any warning signals based on

to specify a list of stocks and

the formula engine including all you can imagine.

the technical indicators right on a “filter” formula.

To this you can add any of