2023 PINNACLE POINTERS

As the year comes to an end, an essential task that investors should make sure to complete is an annual review of all their finances. This will give you an opportunity to assess how your investments have performed, reduce unwanted risk, eliminate hidden fees and to, most importantly, make certain your personal financial goals are aligned with your investment strategy. Why is this so important? In order to live the life you choose to live, your investment returns need to perform at a level that allows you to live life on your terms. Let’s look at a few year-end tips to help put more money in your pocket or reduce unforeseen risk.

Align Your Life Goals to Your Investment Strategy

Focusing on an investment strategy that is aligned with your financial goals is key to having a good chance at living the life you want to live. One of the biggest mistakes investors make is trying to find the next hot stock, best performing mutual fund, or the highest paying dividend stock. These types of investments are what we refer to as tools. Individual investors are trained to think in terms of tools; it is in the interest of the broader financial industry and financial media to perpetuate the importance of being an expert with all of these tools. However, successful investors know that the key to living the life you want is to establish your financial goals first – begin with the end in mind. Once your goals are clear, the investment strategy and the tools to help you get there are attainable.

Secure Retirement Income

It’s not about how much money you have in your retirement account, it’s about how much income the account generates for you in retirement. It’s all about income, that’s the key. During an annual investment review, some advisors focus on the current account value. The questions that conventional advisors ask are: What is the value of your retirement account? How much risk do you want to take? What should the mix of your portfolio be? These are the most common questions that are asked, but are they the right questions? Probably not. The focus needs to be income. The right way to look at income is to focus on the safety of your retirement income streams. If your goal is to generate a certain amount of income by a certain year, then that’s how you should be measuring your retirement portfolio. And if retirement income is what’s important to you, then what are you doing to protect your income from another stock market crash?

Have an Emergency Fund

An emergency fund is just that, having money set aside and available to cover unexpected emergencies. For example, if your furnace breaks and you need to completely replace your HVAC system, the money to pay for it should come out of your emergency fund. What if you lose your job or have a major medical expense? If you haven’t already done so, this is the reason you need to build your emergency fund. Most financial experts agree that everyone should have at least six months’ worth of living expenses set aside in case of an emergency. This number may vary depending on your particular situation.

Get a fresh start on the new year with a healthy year-end financial checkup. Make the right choices now before it’s too late where you may not have choices available to make. Smart investing now based on a plan that aligns with your life goals is the key to living the life you choose.

When reading what conventional trading education has to offer – whether it be books on candlesticks, education on the internet, or trading education anywhere for that matter – have you noticed what they focus on as the main things to look for on a price chart? The focus is almost always on the chart and volume. There are books written solely about candlesticks and others that only deal with volume because conventional wisdom says those two contain the most important pieces of information when trying to figure out where price will turn and where price will go. If we step backwards for a moment and ask ourselves the basic question of how and why prices turn and move in markets, we think you will find that conventional focus is way off.

The goal is to have a rule-based strategy that helps you determine where price will turn and where price will move to with a very high degree of accuracy. So, what is the governing dynamic behind price turns and moves? Simple, price turns (change direction) at levels where supply and demand are out of balance. It will then typically move until it reaches a price level where there is another significant supply and demand imbalance. So, what does a supply and demand imbalance that causes price to turn look like on a price chart? To answer this question, many would quickly start talking about candlestick patterns and formations and also include volume. Most people suggest you should focus on price levels where there was a turn in the past and to watch for heavy volume, above average volume. This is where the focus gets off track in our opinion. Think about it, at price levels where supply and demand are most out of balance which creates the highest probability turn, is there going to be a lot of trading activity or very little? Like anything in life, the more unbalanced an equation or two competing forces are, the quicker and more predictable the outcome is. In a market, the more out of balance supply and demand are at a price level, the less trading activity there will be. What this picture will look like on a price chart is not heavy trading activity and above average volume like all the trading education promotes, it’s actually the opposite.

Have you ever become involved in something significant without any experience or knowledge, only to learn the hard way that it was a big mistake? The day someone decides they are going to pursue a trading career; they are typically making that decision because of the potential financial prize. They are essentially making that decision because of the perceived benefit.  What most people don’t understand, let alone even consider, is that they are about to step into a mine field of traps that have the potential to drain and destroy their bank account and self-confidence all at the same time.

When you look at the traders who do well and those who don’t, there is a clear difference. The group of traders who focus on the prize, tend to lose money and never achieve their goal.  While the group of traders that focus on the traps and risk, tend to succeed and reach their goal. As always, it’s one group providing income for the other.  That’s trading.

Let’s focus on setting clear expectations on what someone is getting into when it comes to trading, before getting into it. It is definitely not for everyone, so make sure you understand all the reasons not to get involved. And if you still want to after that, you may be a good fit for trading.

Screen Time: As you age, one realization that you’ll think about more and more is how short life really is. Do you want to spend your life in front of a computer or on your smart phone, or do you want to spend time doing things that are important like spending time with loved ones. Many people get into trading thinking they need to be in front of the computer all day, every day. This is completely not the case. If you are getting into trading for the excitement and to watch markets all day, the chances of you being successful are low. You’re much better off going to the amusement park and riding roller coasters. Proper trading means finding low risk, high reward, and high probability opportunities which should take no longer than an hour or so each day as a swing trader. Then, you simply enter your entire order into the market assuming you’re ok with the risk and reward… and leave it alone.

Discipline: This is a must. If you don’t have discipline in other parts of your life, don’t think you will magically have discipline when you start trading. In fact, trading will challenge your discipline more than you can imagine. From birth, we run to things that make us feel good and run from things that we are afraid of. In trading, you almost have to think the opposite. This is because we want to buy low and sell high. But to buy low when prices are cheap and at demand where they are likely to turn higher, you need to buy when everyone else has sold, after red candles, with down sloping indicators, and a down trend typically accompanied by bad news. The act of buying low and selling high is NOT comfortable for the human mind. If you lack discipline, I strongly suggest you don’t try trading. Fix your discipline issues first.

Profits and Losses: People love profits and don’t like losses. This simply leads to people taking profits quickly when they have them and refusing to take losses because they don’t want to lose. This action is common and leads to a short trading career and losses. Successful traders take losses quickly when their plan tells them to, and they hold on to gains until they reach their profit target. They plan out their trade and execute their plan. Think about Michael Jordan and all the game winning shots he made during his amazing NBA career. Do you know how many of those shots he actually missed? The number is big, but he doesn’t care because he knows that part of winning games and making game winning shots is missing some. Therefore, the key is for him to execute his winning skill set and keep taking shots which include losses.

Market speculation is engaged by everyone from the active day trader to the longer-term investor, to major corporations and banks worldwide- all speculating in all kinds of markets and asset classes. There are people everywhere pushing buy and sell buttons every day in hopes of achieving income, wealth, and profits. There has never been so much information and education available on how to speculate in markets. So, with this being the case, why is it that most people lose money trading and that many investors don’t achieve their financial goals?

The first reason may be because most of all the internet information, books, and seminars are loaded with conventional Technical and Fundamental analysis, which tends to teach you how to buy when everyone else buys and sell when everyone else sells (herd mentality). This approach can often be high risk, low reward, and low probability. Conventional Technical analysis is based on pattern recognition that has people buying after price has rallied, and offers buy and sell signals based on indicators and oscillators that always lag price which means lower probability buying and selling opportunities. Conventional Fundamental analysis offers buy signals only after good news is present and company numbers are solid.

Where do you think the price of a stock is by the time this good news is offered to you? If you guessed high, you’re correct most of the time. Remember, the only way to be consistently profitable when buying and selling in markets is to have a strategy that has people buying after you buy- at higher prices than you paid, and selling after you sell- at lower prices than you sold. Conventional Technical and Fundamental analysis does not help us in this regard, the basic principles of these two ways of thinking almost ensure you will buy and sell with the herd, when it’s too late. If proper market speculating was as easy as reading a book, wouldn’t every librarian be a multi-millionaire?

The second reason may be that most people lose money in the global trading markets because they throw all simple logic out the window (which is really part of the first reason as well). When you go to buy a car at the dealership and see the car you have your heart set on priced at $30,000- do you go to the dealer and say, “I like this car so much, I want to pay you $40,000 for it”? Of course not. You most likely offer $25,000 in the hopes of negotiating a lower price. In trading, most people wait for confirmation of higher prices and then buy- which is the opposite of how they buy things outside of trading. This makes no sense.

The more you can bring the mind set and rules that you use every day to purchase almost anything in life into your market speculating, the better you will likely perform.

Do you ever use coupons to save money? If you do, you already know how to buy at a lower price. Take that same mindset and action into your trading world. The mass illusion is that proper market speculating is somehow different than how we properly buy things in everyday life.

There is nothing wrong with following the rules in a trading book, just make sure you are the author and that your strategy has you buying at wholesale prices and selling at retail prices. To do this, start with using all the powerful buying and selling knowledge you already possess and use daily outside of the trading world. Bring this key mindset and strategy into trading and investing and you soon may be spotting “sales” all over the place.

From the day we are born, we are conditioned to trade incorrectly. We naturally run from things we are fearful of and are drawn to things that make us feel good. If you take this action in trading, you are headed for trouble- which in the trading world means losses.

For example, if your invitation to buy into a market comes only after an uptrend is well underway, all the indicators are pointed up, and the news is good on that market, where do you think price is in that market? Yep, it’s likely very high. To buy here completely goes against how you make money buying and selling anything and is very high risk.

Never forget, when you buy, many people have to buy after you and at higher prices, or there is no chance you will profit in your trade.

To obtain an entry that allows you to buy before others and at price levels where the risk is low, most of the time (if not all the time) you are buying at the end of a downtrend when most indicators are pointing down, and when the news is bad. This action is completely against our mental make- up.

As stated before, we are conditioned from birth to trade incorrectly. That action or belief system is often reinforced during the many years of traditional finance/economics in high school and college education. For example, most college courses on markets teach us to do plenty of research on a stock before buying into that market.

The general rule is to make sure the company has good earnings, good management, is a leader in its industry, and has a stock price that is in a strong uptrend. Again, where do you think the price of the stock is when all this criteria is true? Almost always the stock price is very high when this criteria is true, which ensures that if you buy now, you are simply paying everyone else who bought before you at lower prices.

We are not suggesting that you should not buy the stock when this criteria is present. We are, however, suggesting you should wait and buy it when price declines to wholesale levels (demand) which is where the smart money is buying.

There are two things we believe you must have if you are to succeed at trading as a career: 1) a solid understanding of how a market really works (reality based logic), and 2) a rule based strategy based on the objective laws of supply (retail price) and demand (wholesale price).

Due to very little regulation in the trading/investing education industry, many people learn to trade completely wrong from an organization that is good at marketing their product, but not actually having effective trading education.

This ensures that many people who attempt to trade will fail, as they never learn how a market or how trading really works. And instead, they are poisoned with trading education and information that has them buying high and selling low.

This path is fraught with lagging indicators and oscillators and conventional technical analysis information that leads to high risk, low reward trading and investing.

You also must have the discipline to follow your rule-based strategy. The lack of discipline factor likely eliminates many aspiring traders, which results in a select few ever making it.

As always, never forget that those who know what they are doing in the markets and have the discipline to follow rules, simply get paid from those who don’t. So be sure to have the two issues discussed here figured out before you put your hard-earned money at risk.

In one of our previous mini lessons, we discussed tick charts. There are many different styles of charting- ranging from bar charts, candlesticks, Renko, OHLC, to Tick charts. Each different style has its advantages. Here at the Pinnacle Institute, we rely on the candlestick charts to show us the best supply and demand imbalances. The problem with other charting methods is that they do not tend to show us the zones quite as clearly as candlesticks do. However, tick charts do serve a purpose when it comes to finding levels and can be a useful tool to keep in our back pocket under the correct market conditions.

We would not necessarily recommend replacing all your time-based charts with tick charts. Time-based charts work just fine for finding zones, and it is better to think of a tick chart as a supplementary tool to refine your trading process. One of the first things to understand about a tick chart is that you will tend to get more trading signals from it then you would a chart based on time alone. And this is a good thing when needed. However, note that we said when needed. There are specific conditions in which we should use a tick chart and remembering this will help you utilize them correctly.

Ask any market speculator who has any real experience with what it takes to be successful, and they are likely to mention two specific requirements: 1) Having a simple & effective strategy and 2) Consistency.

The Pinnacle Method fulfils the first requirement as it is, without doubt, a simple and rules-based logical approach to the markets. The second requirement of consistency, however, is more challenging to achieve.

There are many factors which contribute to overall consistency in trading. Factors that include psychology, belief in your system, execution of the strategy, and more. Here are five components we hope help guide you to achieving the consistency that is necessary to reach your trading and investing goals.

1 – Discipline

Discipline is the foundation of everything, not in only trading, but in life. A person lacking discipline will often struggle to achieve their goals, and will be stumped time and time again by frustration and disappointment if they’re not aware of where the true problem lives.

There are things we must do as traders that can make us feel uncomfortable. One example is waiting for a set up when the market is moving, and feeling like we’re missing out on opportunity. Another is putting in a stop loss only to see it get hit, and then see price turn in the direction we thought it was going to go…and missing out altogether. These are just two of many scenarios that can test a trader’s discipline. However, without waiting for the right setups and getting out of a trade when we are wrong, we will never give ourselves the opportunity to be profitable in the long term.

Trading is about creating good habits. The tough thing about good habits is that they are often hard to develop and may be ‘painful’ at first, even though they reward us in the long term. Try doing something uncomfortable every single day such as getting up a little earlier, watching less TV, or reading more. By doing something that doesn’t feel natural, you are going to train yourself mentally to do the things that you know you must do when you are trading. Develop discipline and you will develop as a trader.

2 – Integrity

A successful trader knows the rules and follows them every single time. A novice trader knows they should have rules, and maybe even knows what these rules are, but doesn’t follow them consistently. There are things we know we should be doing, but we put them off or we bury our head in the sand and pretend that they don’t matter. Everything catches up to us in the end, and if we don’t show a high degree of integrity and make every effort to follow our rules and trade plan, what is really being said about our expectations of our results as a trader? Write your rules, and then plan your trade following those rules.

3 – Diligence

Think of diligence as the “housekeeping” we must do as traders. In the early stages of a trader’s career, it is vital to make sure all the “t’s” are crossed and all the “i’s” are dotted, so that this level of detail is being applied when implementing our plan to every trade that is taken.

While it is easy to take our eye off the ball from time to time, it is our responsibility to remain focused and apply our process throughout our entire trading experience. We are solely responsible for our own trading results.

A part of diligence is also includes keeping a solid track record of all our trading activity. The more diligent we are in tracking our performance and results, the more successful we will be in adjusting our plan, process, and actions towards consistency. 

4 – Patience

One of the toughest traits for a trader to develop is patience. Stop and think about the verb “trading”. It, in and of itself, suggests a very active profession, yet the irony is that trading is actually much more passive than many other things we could chose for a career. Much time is spent waiting for price to come to our supply and demand zones.

There really aren’t any secrets to successful trading, but one thing for sure is that if we don’t wait for price to come to the optimal entry points, we will not have the opportunities to achieve the highest rewards with the lowest risks and the highest probabilities. Process over profit is key to remember. Let time do its work, and our plan will do the rest for us.

5 – Hard Work

The last piece of the puzzle, often the component that many don’t want to apply, is hard work. Profitable traders are an elite group of individuals who have learned through solid education and experience what it takes to make money in the markets.

Again, there really aren’t any secrets to successful trading. We all like the idea of trading, but few actually like the reality of the hard work that is required to get us where we want to be. Trading is a business, just like any other business in that if we want to rise above and accomplish things that many only dream of, we must go the extra mile in both education and mind-set, and apply good old-fashioned hard work. Invest the time in yourself and the results will pay dividends in the long run.

Most people do not seem to understand or focus on Bonds/Interest Rates. Bonds, for the average investor, can certainly be intimidating. In this article, we will help simplify the powerful and important Bond markets for you, and focus on three reasons why you may want to pay a little more attention to them.

Trading Income Potential

Bonds are a fantastic trading and investing vehicle. You can trade the bond market through multiple channels including Futures, ETFs, and more. The major Bond markets such as the 5, 10, and 30 Year in the US and the Bund and Bobl in Europe are some of the highest volume and most liquid markets. This makes for very clean and clear Supply and Demand zones and great trading, if you know what you’re looking for.

Interest Rates

Are interest rates a part of your life? Have you ever borrowed money for a home or car? Do you have money invested in bonds? If so, how would you like to have the ability to forecast where interest rates are going in advance with a good degree of accuracy? This can have an enormous impact on your life when it comes to finances. These Bond markets are the free markets for interest rates, this is where interest rates come from. For those who don’t know, when Bond prices go up, interest rates come down. When Bond prices come down, interest rates go up. This is where rates are determined. So by identifying where Supply and Demand is on a Bond chart (where banks are buying and selling bonds), we can predict interest rate direction with a strong degree of accuracy. This is key information for someone with an adjustable-rate mortgage or someone seeking a high rate of return from bonds.

Probability Enhancer

Most people are aware of the relationship with the Stock and Bond market. Most people think that when Stocks are going higher, Bond prices are going lower and vice versa. This is true some of the time, but certainly not always. There are plenty of times where these markets are moving in the same direction. When trading the stock market or Equity Index Futures, the Bond market can often help increase our probability of success. A rule we use with our strategy is as follows: When the S&P (for example) is nearing a demand zone, check to see if the Bond market is nearing a supply zone. If it is, the S&P zone may be a higher probability buying opportunity. In other words, when both the Stock and Bond market are reaching opposing supply and demand zones at the same time, the probability of prices turning at those levels is higher. This of course assumes that you are quantifying supply and demand properly.

The more you understand how money is really made and lost in the financial system, the more financially stable you are likely to be. The markets are simply a transfer of accounts from those who do not know what they’re doing into the accounts of those who do.

Moves in markets are a result of mass psychology. 

Profits are attained in the markets by being masters of human psychology and supply and demand. 

It is well known that trading is nearly 100% mental. Winning in the markets is more defined by your mental make-up than your trading style. 

What is more important than chart reading is to first understand how people think. 

If you’re having issues with trading, instead of focusing on changing our actions- it’s time to notice where those actions come from. Moving backward, one step at a time, actions stem from behavioral patterns, and behavioral patterns stem from beliefs. 

So it’s at the level of beliefs (thoughts) that decisions are made, and even more so where your ability to differentiate reality from illusion lie.

 It’s time to start considering where your beliefs about what does and what doesn’t work in trading come from. It’s also well known that the majority of active traders lose money. Let’s look at some clear differences between those who tend to do well in the markets and those who don’t.

The Novice Trader

1. They tend to follow the herd.
           •  Watch and do what others are doing
           •  Comfort in number
2. They avoid taking risk unless others are sharing the risk as well.
3. They feel that if others are buying then it is “ok” for them to buy too. 
4. They act on the advice of so called “experts”.  (i.e., the advice of market gurus, CNBC, analysts, and their brokers)
5. As humans, they tend to complicate the trading process and ignore the important simplicity of markets.
6. They tend to make the same two mistakes, they buy and sell after a move in price is well underway (late and high risk) and they buy into price levels where supply exceeds demand (low probability) and sell into price levels where demand exceeds supply.

The Astute Trader

1. They lead the herd.
2. They tune out all the subjective noise that can get in the way of making proper trading decisions. They don’t care what others are doing and make decisions based on a very mechanical and unemotional set of criteria based on the laws and principles of supply and demand.
3. They learn to identify the proper entry that most people never see.
4. They buy after a period of selling and into demand, they buy fear…at the right time.
5. They sell after a period of buying and into supply, they sell greed…at the right time.
6.  They can identify opportunity before others.
7. They execute trading plans mechanically.

Which camp are you in? 

The Pinnacle Institute strives to highlight the importance of a trade plan and keeping things simple with a rules-based process. The Pinnacle Method presents a clear and objective approach to the financial markets. However, as traders, it is vital to ensure that we don’t get in the way of the plan working for us.  

Market speculators often get in the way of their own success and jeopardize their goals with their actions. Our market specialists have taught thousands of people globally about the ways of the markets. With this experience, they have encountered many types of personalities, been exposed to the traits of those they have instructed and have seen many of the same patterns.  

The traders who typically struggle the most, usually fall into one of three personality types which we will detail here. By discussing their challenges and offering some action points, we hope you too can take something away from this analysis as a guide to overcoming the biggest hurdles we all face in trading.

It’s no secret that the majority of active traders lose money in the markets. One of the biggest mistakes traders make is where and when they enter (buy or sell) the markets. Most traders today still buy and sell “breakouts”. Trading breakouts can be high risk, high stress, low reward, and low probability or this strategy can be low risk, low stress, high reward, and high probability. The difference lies in when you enter into this type of position, and how you ‘think’ trading in general.

Before getting into the details of the mistake and correcting it, it’s important to understand two key components of markets.

1. How and why do prices move in any market? Price in any market turns at price levels where demand and supply are out of balance. Price then moves through price levels in a market where there is a lack of a significant Supply and Demand imbalance. By quantifying demand and supply areas on a price chart, you have a good chance of identify market turns and market moves in advance.

    

2. Who is on the other side of your trade? Trading is simply a transfer from the accounts of those who don’t know what they are doing, into the accounts of those who do.

The Logic

Notice area “A” in the chart below. Area “A” is the origin of a strong rally in price. Most breakout traders will look to buy as price breaks out to the upside from area “A”. This type of breakout entry is typically the “sucker bet”. Traders see price moving higher from area “A”, and they give in to the emotional pull of ‘fear of missing out’ and buy into that initial rally because they see others buying. The problem is that by the time you buy the breakout of area “A”, price has moved so far that it becomes a high risk and low reward trade.

Instead, consider sitting back and let the breakout happen because that breakout tells us that there is a demand and supply imbalance at area “A”. This is where the financial institutions are buying. Next, wait for price to return to area “A”. When it does, consider buying at “C” as we are likely buying from a novice seller. We can assume this because the seller at “C” is making the two mistakes that novice traders make. First, they are selling after a period of selling and second, they are selling at a price level where demand exceeds supply.

The Breakout Trade

After another eventful trading week in the financial markets, we want to share with you some insights into using The Commitment of Traders Report in our long-term speculation. While the Pinnacle Method is a robust and mechanical system for trading and investing, we should always be open to other ways to enhance our probability of success.

The COT (Commitment of Traders) report is directly linked to the futures market but can still be used as a highly useful resource for Forex trading as well, especially for those currency traders among us who like to engage in regular trading activity in the major pairs like EURUSD, GBPUSD and AUDUSD. In fact, COT can be used for any of the major Dollar-based FX pairs and even the Dollar Index itself, as these pairs are all available to trade as liquid futures contracts which directly mirror their spot market counterparts. Unfortunately, we do have to exclude the cross-pairs like the GBPCAD or EURJPY. Those pairs do have futures contracts, but they are highly illiquid and therefore are not ideal to actively trade.

Before we investigate how we can use the COT we should understand what it is. Firstly, The Commodity Futures Trading Commission (CFTC) releases a new report every Friday at 3:30pm Eastern Time, and the report reflects the commitments of traders on the prior Tuesday. The weekly report details trader positions in most of the futures contract markets in the United States. Data for the report is required by the CFTC from traders in markets that have 20 or more traders holding positions large enough to meet the reporting level established by the CFTC for each of those markets. The data is gathered from schedules electronically submitted each week to the CFTC by market participants listing their position in any market for which they meet the reporting criteria.

Isaac Newton was was born in England in 1643 and is considered one of the greatest scientists and mathematicians that ever lived. In College, he had strong ideas about motion and broke them down into three laws which I will explain in simple terms below:

As members of the Pinnacle Institute, you know the importance of rules, and how strict we are in following them. Rules develop a process, and they also remove emotion if we choose to stick to them. Nobody has a crystal ball, and the market can only be predicted to some degree. Therefore, probability must always be stacked in our favor. The Pinnacle methodology of qualifying zones and ensuring the risk to reward potential of our opportunities is critical to ongoing consistency and trading success. 

In the Pinnacle Method, there is a step-by-step process of identifying and qualifying trading opportunities ahead of time. There is simply no excuse for jumping into the market without a plan. Behavior of this nature represents the mentality of the novice. We must approach the market as professionals, waiting for price to come to us with the intention to buy at demand and sell at supply. This process is the foundation which lays the ground for everything else. However, depending on what we trade, and when we trade, there can be additional filters or ways to stack the odds in our favor, if we approach our analysis in a logical manner. ‘