The Practical Fractal: The Holy Grail to Trading by Bill Williams PhD of Profitunity Trading Group

All right, thank you. We're, we're here today to talk about trading and some ways to increase our efficiency at trading and make more money at trading. One of the things I'd like to pose with you first is a real problem that we have in trading. And if we can solve this problem, then we're a long way along the way to understanding the market better and to trading better.

One of the F, the first part of this problem is that you, as a group, as a group of traders, are in the top 10% intelligence-wise of the entire nation. We're in the top category as a group. That doesn't mean that every one of us is in there, but as a group, we're in the top 10 percentile. Most of the people who come to trading commodities have already been successful. And that's a second characteristic of it, and that's number two, is that we've had previous success. And then the third thing that we have, ler a little bit. Yes, okay. Yeah, we'll lower those so you can see them better. The third thing that we have, unless you have found a broker that I haven't found yet, who will open up an an account on a credit card, you have to have accumulated some kind of amount of money. So there are three things: then you're in the top 10%, you have success, previous success, and you have money. And guess what that ends up as? That ends up as over 90% failure. In fact, the average trader coming into the market is blown out in a little bit more than three months. If we can understand this, then we can go a long way in understanding how to make money in the markets and how to trade the markets.

Einstein, Albert Einstein, toward the end of his life, was asked a question by fellow scientists. And the question that he was ask is, what is the most important question we could possibly ask? And they thought that Einstein was going to ask, say, that something about the unified field theory, which was what he was working on at that particular time. But his answer is intriguing. It, without any hesitation, he said, "The most important question you can ever ask is, is the universe a friendly place?" And today, the question I hope we can ask after this is over is, is the market a friendly place?

Let me give you a challenge right now. You have your pencils and paper there. What I'd like for you to do is to take a second or two and write down on that piece of paper what, what animal personifies the market to you? Assume that I have just landed from Mars. I don't know anything about the market, but I want to become a commod trader and I come to you and I say, "Well, what is it like? You know, I know animals. I've been out on the farm. What animal does the market personify to you?" Okay, somebody give me an answer.

A 500-pound gorilla. A 500-pound gorilla. Okay. A wolf. An eagle. An eagle. Okay. Godzilla. God. Godzilla. What else? A female. A female who? I won't get into that one. Okay. What else? Anybody have a different one? A cow. Tasmanian devil. A Tasmanian devil. What, what's characteristic about all of this? Unpredictable. Unfriendly. Exactly. It's unfriendly. It's threatening. And we come to the market, and this is a threatening thing, and we're supposed to relax and make money and trade well. And, and one of the problems that we have is that in trading the market, we often times come in with a lot of fear. And because we have that fear, our mind doesn't quite work the way it should, and we don't trade the market the way it should.

Today, we're going to look at a very different map, a very different way of looking at the market. And the first thing we need to understand is exactly what is the market. It's not a Tasmanian devil. It's not Godzilla. It's not a female. It's, it's really not all these things. The market is very simple. And I'd like to share with you a very simplistic kind of a comic book example of what the market really is. Most of you remember The Flintstones. Remember, we had two leading characters in there. We had Fred, and the other guy's name was Barney. And Fred was sort of an outgoing guy, a dinosaur hunter, and a real he-man. And Barney was more the, the academic, laid-back, research guy who likes to live in his backyard. And Barney liked to carve uh dinosaur clubs, and and Fred liked to go out, likes to go out and hunt dinosaurs. So one day, Fred goes out, he really hits a jackpot. He brings home two dinosaurs, and he's dressed those dinosaurs, and he's got all these dinosaur Whoppers in his freezer. And he notices that his club is, is kind of wearing out. It's not too good. And he looks over at his neighbor's yard, Barney, and Barney's got this brand, brand new club. So Fred gets an idea, and he goes over to the fence and he says, "Barney, I tell you what I'll do. I'll give you two big platters of dinosaur Whoppers if you'll give me that club." And Fred thinks about it, and he thinks, "Well, if I get those two platters of dinosaur Whoppers, I won't have to go hunting for a couple, three weeks. I'll feed my family." Everything. "Okay, Fred, you've got a deal." Now, they have created a commodities market. And there's no commodities market in the entire world that's really more complicated than that. They have a lot more, more computers, a lot more screens than, than Fred and Barney had. But that's a commodity market. A commodity market, very simply, is a, a process or a place that's designed specifically to find that point where there's an equal disagreement of value and an agreement on price. For example, the last car that you bought, you gave somebody either your money or your credit to get the car, because that car was more important to you than that money. Now, to the other side of that deal, your money was more important to the person you bought the car from, and you made a deal, and you created a commodity market. And again, repeating that, a commodity market is nothing more, any market is nothing more than a place where you have a, your, your job is to find that place where there's an equal disagreement on value and an agreement on price.

Now, that being true, let's, let's examine that and see if we can take it a little bit further. If that is true, we can greatly simplify our approach to the market. Making money, and you've heard this before, making money in the markets is really very simple, not necessarily easy, but simple. And commodity markets are very simple. Now, as a commodity market, and they, they're very efficient. I mean, they find this place, whether it's outcry or computer matching or whatever, before you know it, before I know it, before the guys and gals on the floor know it, it happens automatically. It, it will be right at that point all the time. If that's true, then we can throw out a lot of things. First thing we can throw out is a concept of bullish and bearish consensus, because basically, there is no such thing. The way that works is simply this: I will go out and I will survey some people. I'll survey these four people over here. What's your opinion on gold? You like it, you like it, you like it, you don't like it. Then I write up a, a text and it says that there is a 75% bullishness in gold. Now, all that means is I haven't surveyed all the bears, because there can't be 75%. There can't be 50.1% bullishness in the gold. If there were, it would have already gone up in price. So if we can throw out bullish and bearish consensus, we can throw out some other things. We can throw out the entire concept of oversold, overbought, because it's really not there. The markets are designed specifically so that there cannot be oversold, overbought. We had a person come to a tutorial who said, "Bill, you're absolutely crazy. There is such a thing." And I said, "How do you know?" And he says, "Because they have an oscillator for it. And how could they have an oscillator for it if it's, is not really there?" And so we had to spend a little bit more time with him to explain it. But that's really true. There is no such thing as oversold, overbought. The markets are designed specifically to make sure that that doesn't happen. So we can simplify it that way. We can also simplify a lot of money management that you read. And one of the things that, that's very common, particularly with, with new traders, is that they will tell you, as soon as you call the broker, the same telephone call, "Don't hang up the phone when you put in the order. You put in what else? A stop." Right? And they'll say, "Well, if you're trading the bonds, put your stop in $500 away. Don't ever take more than a $500 risk in this, in the, in the bonds." And if you do that, that's okay. But you need to understand that you have nothing to do with the market. You're not trading the market, you're trading your wallet. And one of the, one of the most inappropriate questions, in our opinion, that you could ask at the end of the day in trading is, "Did we make money today?" That's totally irrelevant from our point of view. The only question that, that is legal at the end of a trading day is, "Was I in tune with the market?" If you're using a $500 stop, you're not in tune with the market, because you're trading your bank account and you're trading your wallet.

And one of the problems that really gets us, and, and we're going to get into how to use this very shortly, but before we do, we need to look at the maps that we use for trading. And, and one of the problems in technical analysis, and let me state quite frankly, my opinion, and this is my opinion, technical analysis does not, not work. I don't know how in the world anybody can espouse technical analysis when 90% of all the technical analysts lose money consistently. Now, if you were a plastic surgeon and 90% of your patients were uglier than when you started on them, you're not going to be in business very long. Technical analysis is not bad, it just doesn't work. And here's the reason it doesn't work. What happens is you have these smart people coming in, the top 10% IQ, they come into the market, they've been successful in most everything they've ever done. They try to trade, or they start trading, and they lose money. Then what do we do? Well, we, we pull out the charts and we say, "Well, yesterday, or last week, or last month, or last year, if I had done this and this and this, I would have made a lot of money." So they said, "Okay, if I would continue to do this, maybe I'll make a lot of money." They go to the past and they make a template of the past, and then they try to fit that template onto the future. Unfortunately, it doesn't work. As a matter of fact, the better it worked in the past, the more for sure it's not going to work in the future. The underlying assumption is not accurate. It's a false underlying assumption. And that underlying assumption is that the future will be like the past. And if there's any one thing I have learned in 36 years of trading is that the P, the future is not going to be like the past. The S&P is not what it was a year ago. And my conclusion, it's not going to be next year what it is this year. The currencies last year were crazy, wild, and wonderful to us. The currencies are good to us this year, but not, they, they're not crazy, wild, and wonderful to us this year. So the, the underlying assumption behind technical analysis, again, in our opinion, is false. We're using the wrong map. It's exactly the same thing. And, and right now, as we're talking, there's a very, very good football game, college football game going on between number two and number four. So we will cut this short so we can go to the football game later. But it's like playing a football game where you outline every play you're going to make during the whole game before the game starts. Now, how successful do you think a football team would be that way? Wouldn't be successful at all. No. You'd be kicking at the wrong time, throwing at the wrong time. But that's what technical analysis does. It takes this template from the past and tries to impose it on the future, and it doesn't work. It lucks out every now and then, but it doesn't work. So what we're doing as a group of traders, the 90% of us that lose, is that we're using the wrong map.

And let me explain what I mean by that. Uh, about 20, 22 years ago, a university in Texas did a research study. Now, this is a little bit weird research study. They spent $3 million on this, and they asked two questions: If all of the animals in the world had the same intelligence that human beings have, but they had the same physiology, so a grasshopper is still a grasshopper here, but it has the brains of a human, and a cow is still a cow, but it has the brains of a human, and all of the animals at once went out to look for water, search for water, what would be the first animals to find it? And what would be the last animals? Now, all of these real smart professors and researchers could not decide on what animal would be the first. But do you have any idea what they all agreed unanimously, without one exception, what animal would be the last to find water? Anybody? Fish. Fish would be the last to find water, because fish don't know anything else. I mean, you're sitting here, and I'm up here, and what we think normally is, there's nothing between us, right? But there's a whole ocean of stuff that's going on between us. And just as a fish don't, they can't see the water or don't notice the water, we don't notice what's going on. And this is because of the classical scientific heritage we have. Uh, what's going to kill you and I, what we're going to die of, if we don't get in an accident or have some, uh, tragic disease, we're going to die of gravity. Gravity is going to kill us in the end. And we don't ever talk about gravity, do we? But we talk about the weather all the time. And what if we, what if we were out of gravity for say, 2, 3 minutes every, every 24 hours? We wouldn't talk about the weather. We'd talk about gravity. "Where'd you go last night?" "Well, I went to Mars and then came back to Venus and, you know, went around here." But we don't talk about gravity because it doesn't change. We talk about the weather because it changes. We talk about the market because it's changing. The market is exciting because it changes. Um, we live in a logic ocean. And what we think about determines how we trade. And one of the assumptions that we operate under when we trade, and one of the assumptions that I think is true, is that you don't trade the market. I don't trade the market. The institutions don't trade the market. None of us trade the market. We all trade our personal belief systems. And chaos, when we talk about chaos, we'll understand how this affects our trading.

Now, our current logic system came down from an old guy about 2, 200 years ago by the name of Aristotle. And Aristotle seduced the whole world by saying, "If you don't know something, the best thing you can do is to go to somebody who knows more than you and ask them." Now, that sounds very logical, doesn't it? I mean, our whole, all of our society is built on that. Medicine is built on that with its double-blind studies. Law is built on that with its precedence and, and what cases we, we had before. And schools are certainly built on that, right? You go to school to let somebody tell you you're either right or wrong, right? And, and you want to get more right, so you, you change everything to please the teacher. If you're a freshman in college, you're probably very ignorant. And when the history professor tells you to go home and read 10 pages like an idiot, you go home and read 10 pages. Then you become a sophomore, and somebody clues you in. You don't study the books, you study the professors. You give the professors what they want, and that's how you get by. And what you do is you lose your own thinking, and you lose your own creativity. Well, Aristotle came down through the ages with this, and, and his picture of the world was a very smooth-running world. And anything that didn't fit in this picture was either a measurement error or it was random.

There was another guy who lived at the same time as Aristotle, and I don't know how many of you have ever heard of his name, but his name was Heraclitus. Heraclitus had a very different view. The most famous saying of Heraclitus, probably, is that you can't step in the same river twice. And Heraclitus had a student by the name of Clitus, who went further than that. Heraclitus says, "When you step in the river and pull your foot out and you go right back in, not only has your, the river changed, but your foot is changed also." Clitus, his student, went further than that. Clitus says, "You can't step in the same river once." That in the process of stepping in it, it changes. So on the one side, we have this smooth-running, Euclidean, Newtonian world. And on the other side, we have this Heraclitean world. Everything goes very smoothly through Galileo, Descartes, all of these people, Newton, G. And comes down to about 1911, and some little short guy comes out of the woodwork and upsets the whole apple cart. And his name was Einstein. And he came in and he introduced a concept called relativity, uh, the special theory and the general theory. Up to that time, science, classical science, said there are four things we're working with. We're working with mass, energy, space, and time. And Einstein said, "Space and time are really the same thing, guys. There's no difference." And any self-respecting physicist in the last 90 years doesn't mention the word time without a hyphen in space, or space with a hyphen in time. And he said that energy and mass are really interchangeable. So he, he took all of this stuff that we counted on for all these centuries, Neons, and took them away from us. The only thing he really left us with as a constant was the speed of light. And then comes along quantum mechanics. And quantum mechanics says, "Hey, that's no limitation. There, there are dozens and dozens of things that travel faster than the speed of light." And now we're, we're sort of left with nothing. And John Bell comes in in 1964, or with what's known now as the Bell Theorem, which St says that there is no locality of causes. That there isn't a cause and effect of stimulus response that we all learned in school. That everything is connected to everything else. That you and I are connected right now. You and I have been intimate with each other already, because you've breathed out part of your body and breathed in part of mine. And we don't notice it, but we've been very, very intimate with each other already since we've been in this room. And John Bell says that we are all connected together.

Then after that, a guy who just passed away a couple years ago, David B. Um, in my opinion, 100 years from now, people are going to look back and they're going to say the most famous person, world-changing person in the entire 20th century was a scientist by the name of David Bow. David B. was an American. He was a graduate student of Einstein's at Princeton. He was Einstein's favorite student of all. And got somehow messed up in the McCarthy hearings in the '50s and said, "I will not live in in a country that acts like this." Moved to London, became a physics professor at the University of London. And he went further than Bell. What David B. said is that everything, not only is connected, but everything is the same thing. And that has some far-reaching re aspects. It means that you and I and the market are the same thing. That the market is not one of these big economic, fundamental, mechanical, or technical kind of operations. The market is really a composite of all these millions of human traders like you and I who are making these crazy, chaotic decisions in our life.

Now, let's talk about chaos for exa, for for a moment, because chaos is going to affect your life much, much more in the next 20 years than either relativity or atomic vision or any of these other scientific advances. If you knew everything there was to know about chaos, and if your job was to throw as many people off base as you possibly could by naming it something it isn't, you would call it what? Chaos. We, we have a, a, a talent for misnaming things. You and I think we're right now that we're talking with our conscious mind, or we're communicating with our conscious mind, right? The left hemisphere up here. But that's the only part of your brain that ever goes to sleep. It's the only part of your brain that is really unconscious from time to time. And yet we call it the conscious mind. If you really understood what chaos is, chaos is not randomness. Chaos is a much higher form of order. And what I'd like to suggest that you, you remember from this presentation is that the next time you hear the word chaos, uh, as in the science of chaos, chaos is a bad name. The real, in the real message or the real meaning of this science is how you handle new information. So chaos is new information. And we call it chaos, but it's new information. It's a much more descriptive term.

Then we, we come to the part of how do we handle new information? Because up here on the chart, what you see is new information. Every time you look at a chart, the first thing you have to do, or what the first thing we normally do when new information comes in, we try to organize it. We try to put it into old categories. So we say, "Well, what is it like? It reminds me of this, or is it like this?" What we're doing is we're massaging this new, pristine information and putting it into old categories. And we'll, we'll squirrel it around and bend it around and make it plastic so it'll fit in there. Um, I had, in my younger days, I had an experience, a bad experience with a lady who happened to have red hair. And, and I judged from that experience that that any, any female with red hair is absolutely no good. So today, when I see a red-headed lady, unless I catch myself, I've already made a judgment. I don't even know who she is. I've never met her. But this is because I have, I've massaged this new information into these old categories that stay away from red-headed women. Now, we all do this. We all try to organize any kind, kind of incoming information. Once we have anything organized, it doesn't matter whether it's a note you're taking, or the IRS, or whatever. There is a strong tendency. The first priority of any organization is to survive. Now, we're in an election year. And not so much now as we get closer to the election, but last year, there was a lot of talk about doing away with the IRS, getting a flat tax, a consumption tax, or whatever. Can you imagine what would happen with the hundreds of thousands of employees at the IRS, the hundreds of thousands of CPAs and tax lawyers, if we really try to do away with the IRS? They're going to try to keep that thing going. You, once a bureaucracy in government is established, it keeps going. In the market, once a bracket goes, it tends to keep going. Once a trend goes, it tends to go further than you thought it would. Remember back in the mid-'80s when when some of these, uh, wildy skeptics and specters were were saying that, "Gee, you know, uh, the Dow is going to go up above 3,000, it's going to go to 3,700." And everybody was poo-pooing that. And what happens? It's almost twice that now, and still on its way up. Anything that is organized tends to survive, or that's its primary function.

We were having a discussion not long ago about the economy of the world. And, and we, we're talking about what are the biggest movers of money in the world? And we came up with four. The four biggest money movers in the world, and nothing else in the world can come close to any one of these four. And those four are: war, medicine, religion, and insurance. Think about that for a moment. War, medicine, insurance, and religion. And they all have one thing in common, and that's death. And, and all of us won't, don't want to look that in the eye. We want to survive. There's, there's an old country song whose verse goes, "Everybody wants to go to heaven, but nobody wants to die." Which points out some of our paradoxical kind of thinking. But think about it. You have war to kill people and break things, right? And if you, if you get, don't kill somebody and you wound them, you, you put them together with medicine so you can send them back and shoot them again. And, and those who get shot and killed, you've got insurance to send some money home to sort of, uh, ease their pain a little bit. And then you have religion to take care of the ones who were shot. But all four of these biggest money movers in the world have to do with death. And it has to do with organization.

Now, let's look at some of our personal organizations here. You are in a profession of trading commodities. Your job as a speculator is to take risk that other people don't want to take. And if you do a good job, they'll pay you outlandishly for taking those risks off their back. But what did you learn? What was the first thing you learned as a kid? Not to take risk, right? Don't touch the hot stove. Don't go across the street. You learned before you had any intelligence to make a decision to be risk adverse. Let's say you're a two-foot-high person here, and you're adventurous. You're out there trying to learn what the world's about. And you're, you're entering the terrible twos, as they call it. And your mama says, "Don't touch the hot stove." Well, you don't like that. So you bite her on the leg. And then she whips you a little bit. And, and you get this idea. This organization comes in. This new information organizes itself that I'd be a bet lot better off if I wouldn't bite her on the leg. And then you, you take this into adulthood. And when somebody says something to you, you don't bite them on the leg anymore. Well, we, we do the same thing in trading. We don't trade the market, we trade our own personal belief system. Any questions at that point?

One of the things that, that we, we talk about in, in, in chaos. One of the things that chaos theory tells us, there are three principles in, in chaos theory that, that are important. And you can see these principles that work in the market every day, and on every one-minute and five-minute chart. First principle is that everything in the universe, everything takes the path of least resistance. Now, you are here because whatever was going on in your life, this is the path of least resistance. You're sitting with where you're sitting right now because that was a path of least resistance for you at this moment. What you will trade tomorrow or Monday will be the path of least resistance. And the market will take the path of least resistance. That's the first principle. The second principle is that this path of least resistance is determined by the always underlying and the usually unseen structure. For example, let's say you have a river running down, down the hill. That if the riverbed is shallow and narrow, you're going to have rapids. If the riverbed is deep and wide, you're going to have a calm pond. It's not a decision of the river. It's a decision that's me, that's dictated by the riverbed. Let's take another example. Let's say that you had to go to the bathroom right now. Well, the bathroom is straight over there. But you wouldn't go that way, would you? What you would do is you'd get out of your seat and you'd go down the aisle and you'd go back through the door, and then you turn left and go down the hall three doors, and then you turn left and go through that door. Why did you take all that circuitous route when the bathroom's over there? Because you have learned. You've learned long ago that you're better off if you don't try to walk through walls unless you're Superman. But when you were doing that behavior, when you were going to the bathroom, you were probably unaware that your behavior was controlled by the architect who drew up this building, and by the building contractor who put the doors in the hall out there, rather than straight to the bathroom from your seat. The same thing happens when we're trading. We're affected by things we're not even conscious of. The third. So the first principle is everything follows the path of bleach resistance. The second principle is that path is determined by the always underlying and the usually unseen structure. And the third principle is that that unseen structure, that unseen underlying structure, can be discovered, and it can be changed. So the underlying structure of our belief systems that we trade can be discovered, and it can be be changed. Just like the kid who doesn't bite mothers anymore, that structure can be changed.

Let's look, for example, at a couple of things about the market and the underlying structure. What happens and who moves the market? The first thing that moves the market is out there in the whole complex of Trader Land. There are changes in attitude about the market. I think it's going up, and I'm not sure it's going up. I think it's going down. And that kind of a change. For, and remember that that for every, every change in the market, there, it always happens where there is an equal disagreement on value and an agreement on price. And that first thing that happens is somewhere out there in Trader Land, a group of people who may not be together, but scattered all over the world, looks at the market and looks at the chart and says, "Hey, this is not quite working out the way that we thought it was." So that's the first thing that changed. The second thing that changed is that produces a change in volume. Either people getting into the market, going long or short, or people getting out of the market, reversing their position, just getting out, or going flat, or whatever. And that changes in the market, a volume, and a possible change in the bias of the momentum and the direction of the momentum. Following that, that produces a change in the speed of the current momentum. And it may again change the direction. For example, the last thing in the market to change is price. And a lot of traders and a lot of analysts say, "Well, changes in price make changes in attitude." Uh, from our standpoint, price doesn't do anything. Price is the effect. The last thing to change is price. What changes before price is momentum. What changes before momentum is volume. And what changes before volume is all of these crazy decisions that we're making out there in bond land. Then the next thing that changes is the speed of the current momentum. It will either accelerate or decelerate. It's like a bowling ball, something heavy. And you take that ball and you roll it down the street. And as the ball is rolling down the street, it continues because it has momentum. If, if it meets a hill up here, it'll slow down on that hill, and finally it'll come back and go the other way. In market terminology, that's called a change in trend. But actually, from a physic standpoint, when it starts to slow down, it's really accelerating in the opposite direction, isn't it? And the market will tell you that. So when we look at the charts in a moment, the three things we look at, and the only three things we look at, are are the price, where the balance line is, the acceleration, and the momentum. And the, we trade the market on these five dimensions. The next thing that produces is a change in the direction of the momentum. And the final thing that it produces is a change in price. And, uh, we CH, we trade this on a five-dimensional basis. And we're going to show you exactly some of these dimensions. We won't be able to show you in this time span all five of them, but, but we'll show you some of them.

Before we do that, I want to share with you a couple of things that, uh, from people who are trading this way. Uh, we have now trained almost 600 people in our private tutorial who are now professional private, and mostly, very most of them are successful speculators. These are two people who came to our, uh, seminar, uh, about four years ago, Charles Parker and Steve Wiland, in Houston, Texas. And this is a note that we got to him from him. "Bill, I wanted to thank you for your guidance weekend, as it was very rewarding. Enclosed is an article from Futures magazine. I'm sure you've heard of that magazine. This month, just to show you how a couple of your students are doing. This was in December. And, uh, the, the headlines were, the, the funds remain in a slump. And these two guys went out and, and established an offshore fund called San Juan Investments. And Futures magazine, uh, charts every month, uh, a number, a little over 200 funds, and this was number one. This was in October. Then in the following, this was in December, I'm sorry, the following October of the next year, uh, it's interesting that there's still number one and number five. Two of the top five were trading exactly what we're talking about. And then in 1994, notice down here, the top performers for 1994 from Futures magazine, and you could believe anything you read in Futures magazine, was, was San Juan Investments."

The thing that that takes chaos from chaos to cosmos, which is unorganized or seemingly unorganized to organized, is a thing called fractals. Now, fractals are nothing new. And don't be frightened by the word. When Columbus invaded America, the mathematicians back in those days were talking about fractals. And in the 1400s, uh, in the 15th century, they were talking about these are the theoretical mathematicians. They were saying, "Well, a dot has no dimensions." We're talking about dimensions. And they said a line has one dimension, a, a, uh, plane has two dimensions, a solid has three dimensions. And then they asked themselves the question, "Suppose you had a very curvy line?" And if you have a curvy line, it's still one dimension. And you had this line, and it was so curvy that you had a plane, a rectangle here, and this line goes through here, and it's extremely curvy, and it goes back and forth and back and forth and back and forth, and then comes out the other side, and it shades one half of that plane. What is the dimension of that line? Well, for 500 years, they pondered that. And then a very brilliant scientist by the name of Beno Mandelbrot came up with the idea that this is a fractional dimension. If it covers half of this plane, its dimension is 1.5. Now, what that's saying is that in IR, in a chart form, an irregular, scattered pattern will have a higher dimensionality than than one that's very smooth. A straight line through this would have one dimension. If it were a plane, it would have two. Mandelbrot went further, and he analyzed the fractal dimension of the Mississippi River. And here we go down the Mississippi River, and he found that the Mississippi River had a fractal dimension of 1.12610, which meant that it was curvy enough, or staticky enough, or or back and forth enough, that it covered one quarter of that La. Then the IBM management, and he's a professor emeritus of advanced mathematics at Yale, and is also still working for IBM in Yorktown Heights, New York. They came to him and said, "Well, um, you know, it's nice that you're analyzing this, but it'd be more helpful for us, since we're supposedly a for-profit corporation, if you would analyze something that we might make a little money out of later." And he took a four-prong approach. He said, "Okay, we'll look at Ma economics, we'll look at physiology, which is medicine, we'll look at sociology, and we'll look at psychology." And from that, and by the way, directly because of that, we have two things. We have heart, artificial hearts that work, and we have the worldwide web. The worldwide web would not work without chaos. And I'll show you why in just a moment. But what Mandelbrot did is he said, "Okay, we'll go and we'll study economics." And in Yorktown Heights, the largest database they had were corn and cotton prices. So he analyzed corn and cotton prices. And guess what he found? To three decimal places, they had the same fractal number, exactly as the Mississippi River. And then they later analyzed the Ohio River, and then they analyzed the Tennessee River because it was dammed up and interfered with by man. And all of them had, to three decimal places, the exact same fractal number. The day that I read that, I did not sleep a wink all night. That night, because it was like the curtains were opening. What it said was, the markets are a natural function. They're not a man-made function. Function. They're natural function. So if you really want to see how the markets work, take a picture of water out here and pour it on the ground, and watch this strange attractor gravity come in and pull it around the rocks and around the high places and the low places. So this was a Mississippi River, and this was the corn chart. Same exact thing. If that be true, then, then the science of chaos offers us a great deal in analyzing the markets and understanding the markets. And it may be a key to why technical analysis doesn't work any better than it does. It may be a better map in which to analyze the market. And we think it is. And we think that we can very easily prove that.

So let's talk about a fractal. A fractal is a change in behavior. So when the market goes up and then comes down, that's a fractal. Uh, a trend change, uh, a fractal. Uh, one fractal that's very easy to locate is a fractal of when you will get out of the market. And you will always get out of the market at at that exact point where losing one more dollar is more painful than saying, "I shouldn't be in this trade." And when you get to that point, you'll get out. And that's a fractal. A fractal was when you decided to come into this room rather than to go into one of the rooms down the hall. A fractal will be when you decide whether you're going to use this material in your own trading or not. When you decide Monday or Tuesday to buy a bond or sell a bond, when you make that decision to call the broker, that's a fractal.

How do we look at a fractal in the market? On page, in your notes, on page nine, there are some key fractal formations. And a fractal, uh, when we were first looking at this, we, we call this a five-fingered boogie. And we called it that for lack of imagination of anything better to call it. So it's like your five fingers. The definition of a fractal is that there must be an UPF fractal. There must be a bar that is higher than the two preceding bars and higher than the two following bars. Now, the two preceding bars and following bars don't have to be like a ENT. They don't have to be this way. They can be anything. They just can't be as, as higher. So here, on this first illustration, we have a pristine fractal. On the second one, notice that we have two that are same height on the middle finger. That's okay. That is still a fractal. Up over here, we have three. It's still a fractal. Up, it's a fractal. Down here, we have the exact same thing. A fractal, a fractal, a fractal, and a frackle. It takes only five, a minimum of five bars. It can be more than five bars, but you have to have one bar that's higher, or for a sell, one bar that's lower. And, and let's look at an example of this. And let's look at an example in, in a real chart. And by the way, these are, these are actual trading examples. Uh, these are not hypothetical. Let's look at at trading the Japanese Yen on a daily basis, starting in January of n, of last year. And this is trading on a daily basis, and trading one contract for every signal. And we'll follow this through January, February, March, and until April the 19th, which is where we got out of this trade. This is January. And that's, yeah. And notice that the first fractal up is, is demonstrated or is noted by this, this, uh, carrot here. And notice that it has a high. It has two previous lower highs, followed by two lower highs. So our stop, our buy stop, is one tick above that fractal. So we bought that fractal at one, and we're filled on it at 102.31. Any questions about that? We have the five-fingered boogie, or the fractal, and the market goes beyond that. It's a breakout. It's obviously a breakout trade. Yes, a question. I, I assume it on the bar. Uh, we, we, the question was, which bar we bought it on? We buy it on the first, the first price that exceeds the top of that fractal. We take one tick above that, and when it hits that, we're gone. Now, since that, since you're buying a breakout, you obviously have the world's worst trade location, don't you? You also have the maximum potential loss. So you need to be satisfied a little bit. Now, remember that we're looking at the market from five different dimensions. For, let me give you an example. Let's say that we have an aquarium here, and we have an a fish in that aquarium. And you have a television camera here, and you have a television camera from over here. You're going to see two different fishes, aren't you? And if we look at the, if we look at the chart just from the, from the price standpoint, uh, we're only going to have, uh, one dimension of that.

One of the characteristics of the market is simply this, that most of the time, about 70% of the time, the market's going to do nothing. And only about 15 to 30% of the time will the market trend. And, and this trending is where we make most of our money. And you've heard, I'm sure, from a lot of traders, they'll say, "Well, making money in the market is easy. The hard part is keeping it." And what they're saying is that anybody can make money in that trend. But when the market is not going any place, that's when the floor brokers, not the locals on the floor, will take your money away from you. And what the fractal guarantees is that you will, will not be left out of any of these trends. Uh, my grandfather used to tell me that even a blind chicken will find an ear of corn every now and then. And we call these blind chicken trades. I mean, there's, there's absolutely nothing skillful in making money in, in a trend like that. You just got to be dumb enough not to get out. And, and it's very easy. This is the easiest trade to make. It's not the most profitable, because on the five dimensions, this is the fourth dimension to get in. So in this fractal, and this illustration that we're using here, we would have been in before that fractal. But right now, let's talk only about the fractal. So that was our first entry. Now, we had a fractal up here, uh, on, um, at 103.81, up at that. And that was on January the 16th. And then on January the 23rd, we had a fractal down form. And notice that it was never hit in January. And then toward the end of the month, we had another fractal. So we ended up the month on a daily basis, and we had 20 bars. We had three fractals up and one fractal down. Only one of them was hit. So we're ending up the month, and the ending.

Up the month of January, at the end of the month, we were long from January the 12th. Phill at 102. That was our Phill, 102.31. The end was at 109.10190. At the end of the month, we're carrying into February a 41-point or a $513 open equity loss. So we've traded the Y on one contract basis for the entire month of January. January, we're behind $513. Not too good yet.

Then we go into February. And February, uh, we had another down fractal, we had an up fractal, a down fractal, and another up fractal. So in February, we had four fractals, two downs and two ups. Neither one of the downs were hit. And this is on your, on your U notes on page 12. The center of the fractal buy forms with a high of 102. And then on February the 13th, we were filled on the opening on our fractal buy from February the 8th. And then on February the 16th, we were filled on our January 16th and February January 30th fractal buy and had slippage on both parts because we had a, we had a gap opening. We're only trading the Chicago markets. We're not trading the overnight markets. So we had this gap up. We were filled on both of those fractals. So at the end of February, where we were standing is that the end closed out the month at 104.57. We're long four positions: 102.31, 104.11, 104.11, that was on the, the where we got filled on two with slippage, and 102.76. We also have a buy stop order for another position at 104.91. And we're carrying into March an open equity profit of 539 points or $673. Much better than the end of January $500 open equity loss. Now we have a little better than the $6,700 open equity profit. And, uh, we are now in three contract contracts, um, four contracts, I'm sorry.

Then we come into March. And March was extremely good to us. We only had two fractals in March. Now, can anyone tell me why this point right here is not a fractal? Why is that not a fractal down? Yes, right. It, it needs a higher low here in front of it. It only has one. And remember, it has to have two on both sides. So that is not a fractal down. The same thing is true with that one. That's not a fractal down. And this is not a fractal up here because it doesn't have one. So it takes a minimum of five bars. At the end of this month, though, um, we had a, uh, buy order from March the 23rd was filled at 14.81. The market closed out the month at 116.97, giving us the following open equity profits on five long positions. Now you're in five positions on a one contract basis. We trade a multiple contract basis, but we're looking at this only on a one contract basis. And at the end of the month, we had 5,675 points or a little better than $770,000. And that's for 3 months. And, and that's, uh, that's a little bit better than working for a living.

Then on on April, we came in. Listen, I used to, I, I have not always been a winning trader. Let me be real honest with you. And back in the, and back in about '80 and '82, I almost bit the dust. And I was literally having nightmares. And my nightmares were I was having to go out and apply for a real job. And that is a nightmare. Um, at the end, we, we actually bailed out of this trade on April the 19th, a day after this. And we actually had a little bit more profit than this. But we made this up on April the 18th. And we had six positions long. And our six positions had a total of 9,000 points or $121,000. That's three and a half months. There are traders who don't make that much in a year. And this is obviously a good example. And I'm going to show you some good examples. I'm going to show you some bad examples. This works on every commodity and it works on every time frame.

What caused you to get out of that, uh, of time? Because we had a sale. It was, it was a reversal. Yeah. We, we don't. One of the things, and by the way, let, let me, let me dispose of another kind of thing that you'll hear over and over again. What you'll hear over and over and over again is that there is no Holy Grail. And, and let me stand here and testify to you that there absolutely is a Holy Grail. And I can give you that in five simple words. And, and if you remember these words, and if you abide by these words, you will not be a losing trader. Those, the Holy Grail is simply to want what the market wants. It's as simple as that. Want what the market wants. All of, all of your disappointments and all of your frustrations come from one place. You, you predicted the market. You had expectations, and it didn't fulfill your expectations. Right? You bought the bonds, you thought they were going up, you fantasized they were going up, you bought them. You bought them from a guy who had just as strong a fantasy they were going down. And they didn't go up. And your expectations weren't met. And you say, goodness gracious, you know, the market's really tough and nobody can win at this game. But what if you had no expectations? What if there were no expectations at all?

Now, when, when I was trading years and years ago, I used to keep, I, I still do keep very, very accurate financial records. I always have. Uh, this is the only thing I guess in my whole life I've done consistently. I still have 3x5 cards, real tattered cards, when I was 11 years old and had a paper route. And on a good month, my net worth would go up 25 cents. And on a real spanking good month, like Christmas, when they give the paper boy gifts, sometimes my, some years, my net worth would go up 75 cents in one month. So when I was trading, I decided that I would keep an account of how well I was trading. So I would take all of the contracts I traded, take my profits and loss, and divide the profit or loss by the contracts, and I would get an average profit loss per contract. So if this month I averaged $75 profit a contract, last month I averaged $50 a contract, I would say, well, I was trading better this month than last month. And then I saw the fallacy and actually the stupidity of that. And I decided that since I, this is my way of making a living and has been for a long, long time, that I should run this like a business. I should have a cash flow of profit and loss and the whole nine yards accounting wise. And did. And that wasn't what I was wanting. That wasn't what I was looking for at all.

And, and today, and for the last 10 or 12 years, I have evaluated my trading on two counts. Uh, one being more important than the other. The, the lesser important, but vitally important, don't let me lead you astray, this is vitally important, but, but it's not the most important thing, is how long does it take me to dial the broker after I see an indicator? So when I see this fractal going up, if I dial, if I'm speed dialing the broker as soon as it's formed, I know I'm trading well. But if I'm saying, yeah, but it might be an wave fourth wave, and you know, 85% of all my whiplashes happen in fourth wave, and think I'll let one more hour go by before I get in. That's a kiss of death for me. My trading will not withstand that. But the real thing, the, the real thing that I evaluate my trading on every second that I'm in the market is this: I look at the chart, I know my positions, and I ask my questions. I ask myself the question, do I give a hoot which way it goes? Do I care which way the market goes? And if I can honestly sit there and say, I don't care which way the market goes, I know I'm trading well. But if I'm sitting there and I'm long the bonds, I'm saying, come on bonds, get up, you know, then, then I know I'm in, I'm in a lot of trouble because I, I am no longer proactive in the market. I'm reactive in the market. So if I walk back there and I slap you real hard in the face, I've got you because you're going to react, and you're going to react automatically. And most traders react. You know, the, it goes down one more tick and I'm getting out of here, you know. And it, it, it doesn't work. It, it works for us. It's been at least seven years since I have been aggravated at the market. Now, I haven't won constantly in seven years, don't get me wrong, but it's been seven years at least since I've been angry at the market because I will not, if I'm in the market and I'm, I'm rooting for a trade, I know from past experience the best thing for me to do is get out.

Question: Why do you set up five, not four?

The, the question, it's a good question. Why do you set up five, not four or three? Because five, five dimensions of the market are all we've been able to distinguish between. Now, price, you have what we try to do is trade the mass, energy, space, and time. So we trade the space, and the space are the fractal trades. These are the spatial trades. But we also trade the acceleration, we trade the momentum, we trade the change in momentum, and, and we trade what's known as the balance line, which are what the strange attractors do. So these, and, and what we're talking about now is one of the dimensions, which is the fractal trait. And if you, if you like more information on this, just, just call our office and, and we will send you a computer disc free and a one-hour videotape free that that goes into more detail in explaining it. I'm sorry, ask, ask that question again, please. You said, uh, the market is like water, like a river? Yes. Yes. Water is like a river. Number 6? Yes. Yes. How, how that your approach to you related to that market?

Okay, the question is, if the Mississippi River and the markets in general, the fractal number is 1.26, which is a number, which is a measure of irregularity. And that, and that's very important. Let, let me make a side point here. For example, um, nothing in the world seems to work regular. If you had very regular brainwave patterns, you would be in an epileptic seizure. You'd be going, you'd be having a convulsion fit here. If, if your heart has a very, very regular heartbeat, you're going to die of congestive heart failure in the left ventricle. So your heart, what does you good when you're running or jogging, for example, is not that you're building a strong heart, but it's, it's routing the, the stuff in the left ventricle. So the, the fractal number is a measure of irregularity. So we use that number, but we, the number does not give us a buy and sell. So what we're doing basically on the fractal, what the fractal is, is when it comes up here and changes direction, and then changes direction and goes further than it did, it's, it needs to do that. That's one of the curvatures that make up the 1.12610. And, and I think this will be a little bit clear in just a moment. Okay. Okay. Let's, let's go from here then, and let's go to, uh, spreads. Because this works in, in options, it works in spreads, it works in commodities, and it works very, very well in stocks also. On a spread, for example, you don't have the open, high, low, close, uh, you don't have volume. So when you're spread, you're, you're talking about one price minus the other price. So all you have is a line, and all you have is two signals. And this is your fractal up signal. So if it goes beyond that fractal there, you would buy. And this is your down signal. If you go lower than that fractal, you sell. And, and it's as simple as that. It cannot get any simpler than that. And let me give you a couple of examples. And, and these are also in your notes. And this is page, um, this is another page on your notes, but I'm not sure which page this is. The Swiss franc Yen spread. Now, we regularly trade three spreads all the time. Uh, we're in them almost every day. Swiss franc, Deutsche mark, Swiss franc, Yen, and Deutsche mark, Yen. Again, last year was an absolutely great year for us in the Swiss franc and the Deutsche mark and the Yen. And, and here you see, uh, 10 months of the Swiss franc Yen spread. And all of these numbers are numbers of, of, um, contracts, not numbers of contracts. These are entries. And this is again, we trade multiple contracts, but the example I'm going to use is a single contract basis. All we're doing is doing what the market tells us to do. We're not predicting, we're not analyzing in the normal sense of the being. It, it's the market is, is to us, and I think this is the more, I think about it, the more I think it's true, trading is like a religion. And in a religion, what you do is you make a leap of faith. You make an assumption that whatever God says is true, right? I mean, you don't say, well, God, I, that doesn't make sense to me, you know, because God says it, that makes it true. Well, when the market says it, that's true. And anytime you say, well, market, that doesn't make sense to me, so somewhere along the line, you have to have enough experience or good experience or enough faith to have faith in the market. The market is not a gorilla, it's not Godzilla, it's not a Tasmanian devil, it's none of those things. The market is nothing except a projection of your mind in a real sense. So once you get the faith there, then whatever the God says is okay, and you don't question it. So when the market says buy, you buy. And when the market says sell, you sell. So anytime these happens, we, we don't discuss it, it's there. All we, all we do, we become an obedient servant. And when it says buy, we call the broker and we buy. So during, uh, from, uh, March the 1st of last year until January the 1st, which is 10 months, these were our actual trading, uh, in the Swiss franc Yen. And on the next page, there is a, those numbers, those contracts? Put on. No, those, those, each, those are fractals. Each one of those numbers. Good question. The question is, what are the numbers? The numbers are, are the fractals. So this was our fourth entry, that was our fifth entry. It, it's not the number of contracts. We were trading multiple contracts, but, but this is, and this is based on a one contract basis. And the reason it's based on a one contract basis is because, uh, in looking at a way of trading, I want to eliminate basically some of the asset allocation. Uh, we do asset allocation, but the only way I think you can analyze and approach to trading better by looking at it on one contract basis, and you can a lot of contracts. Another question. Those are both buy and sell signals, though? Yes, those are both buy and sell signals. And, and we, uh, on the up ones, you can see we're buying. And the reason that was such a good, good move is because we move from way down here to way up there. And the results of that move are on the next two pages. And I'll just show you here, the last page. And this is 10 months on a one contract basis. Now, a, a, the margin for a currency spread normally is 75% of what, uh, one contract would be. So if both of them were $2,000, the spread margin would be $500. So you can do four, basically, you can do four spreads for three open orders. And, and we have other ways where we, we implement this also. But on the, uh, Deutsche mark Yen, in the same period, had a very similar chart, but not quite as much, but it made over $200,000. So if you had last year, and this is, you know, this is what they normally call, um, well, well, the initials are BS. U, it does, it doesn't do any good to look at the past, but these are actual trading examples. You could have started both of these trades with a very small account, less than $110,000, which is totally ridiculous. I mean, we're talking hypothetical now, but $110,000 would have handled the entire year of trading both of those spreads. And, and the problem is, you don't know when these are going to happen. So you have to be in the market. Let me give you an example. Um, we do private tutorials. And, uh, couple of a while back, we had a, a young lady from Little Rock, Arkansas, who came. And she, yes, yes, yes, yes. And, and I don't know if she knew Hillary or not, you know, but, but seriously, uh, it wasn't Hillary. Uh, this girl became a general contractor. And she was a short girl, 4-foot-nothing kind of thing. And if you're, if you're a female who is short trying to do building business, general contractor, in the good old boy network of Little Rock, Arkansas, you, the odds are against you. I mean, the odds are very much against. She made, she was a success. She built residences, she built some commercial buildings, she even built a couple of strip shopping centers. She was a general contractor for 10 years, very successful. Got bored with it and said, I want to do something more exciting. I want to trade commodities. And she started trading commodities. Her husband said, you made all that money, you can throw it away any way you want to, but you're not getting any of the family money to trade. So she came to a tutorial. And on the last day of the tutorial, she said, Bill, I, I have a problem. And I said, what's that? And she said, well, I don't have much money in my account. And, uh, if I lose this money, I, I got to go back to building, and I don't want to do that. And I said, well, Janna, how much money do you have in your account? And she said, a little over $4,600. So I said, okay, let me tell you what your problem is going to be. Because she's really a vivacious, go-getter girl. And I said, your problem is going to be patience. And you've got to trade something because you can't lose this money. And you need a lot more money than that to really have a good chance of being successful. But you've only got about $4,600. And she says, well, I know you're going to tell me to trade Eurodollars, right? And I said, no, not Eurodollars. Eurodollar spreads. Intramonth spreads in the Eurodollars, because they don't move that much anyway. And so when she came to the, to the, uh, tutorial, this is where the market was. Now, down here at the bottom, and this is not in your notes, but maybe you can see this here. But down at the bottom, we had every reason to believe that that was the bottom. We had what we call our five Magic Bullets. And what that means is that all five dimensions had turned around and gone the other way. So we had our five Magic Bullets. When they turn around, it will kill a trend. Um, I've never seen it fail, not even once. And we thought this was the bottom. This was in November. And then we had a move up. And we had what looked like a three-wave move back down. When she came to the, to the tutorial, which was the first weekend in December, we thought that the, this was a September, December Eurodollar spread of the next year. This was in the first weekend in December. And we said, it looks like that the bottom is in to us. Jan. And what we're going to do is we're going to buy a year, some Eurodollar spreads at minus 68. All we have, we only have to take three, three ticks risk, $75. And by the way, the, uh, the margin on a Eurodollar spread is only $250. So you can, you can, you're not taking a big risk. And so her immediate question was, gee, okay, that's good. Let's trade some. How many can I trade? And we thought about it a while. And we said, well, let's try three. Because if we, if we miss out, you, you're getting in at 68, your stop is at 71, you're risking $75, three contracts, three spreads, that's, that's you're risking $225 plus three commissions, and, and that would be somewhere around $300. And you got $4,600 in your account. That would bring it down. But we, it's worth a chance, we think. So she left. She bought the three spreads at six, -68. And she left. And as she was leaving, um, as soon as she walked out the door, our staff were talking. We said, well, let me tell you what's going to happen. Jan is going to get on that plane back to Little Rock, and she's going to realize that she's only margining $750 out of her account. She's got enough money, she could margin 16 other spreads. Cuz I got still $4,000. And that's 16 other spreads. Well, she, she didn't go 16 spreads, but she did indeed think about that on the way back, and she increased her spreads. Now, we got this, this fact from her, uh, uh, month later than that. And hopefully you can read it. It says, Bill, sold all of my Eurodollar spreads except five this morning at minus 27. Now, she went in at -68. And minus 27. Total profit after commissions was $16,250. And this is what she started with. Up here, she started, she left the tutorial with $4,620. And, and took it up to 20,800. And, and that was on plain old Eurodollar spread. Any questions on on that? Okay. Yes. Question: Period of time? Time did she? She, she was at the tutorial the first weekend in January. And the, uh, the fact does not have a date on it. Um, it was probably about three months, maybe somewhere between three and four months, because it was, it was about the end of March, as I remembered that we got that. And, and since then, she's doing exess, very, very good. She has not gone back into the building business. She didn't go out and get a real job.

Another question. Okay, the question is, we, we said we do lose some from time to time. And, and, and if, if I said we didn't lose, you should walk out right now. If anybody says they don't lose from time to time, you should walk out. Um, this does lose. And, and, and I, quite frankly, uh, am not very interested in wins over losses. I'm interested in the bottom line. About, uh, nine or 10 years ago, I had a very good winning percentage. Uh, my winning percentage was something around 68, 69%. Uh, I was not making, with the same amount of equity, I was probably making less than 10% of what I am now with the same equity. And, and I'm, I don't know what my winning percentage is, but I would guess, and this is a guess, but I'm pretty sure it's less than 50%. I, I don't win 50% of the time. But if you get out of your losses quickly, you're going, your win-loss ratio is going to be relatively small. Uh, I know that, um, in the Commodity Traders Consumer Report, one, one year, one of the newsletter writers in there, about May of that year, saw very clearly that he was not going to be a winner in anything. So he decided very consciously, I'm going to go for wins over losses. So what he did for the rest of the year, as soon as he got a profit, he locked it in. As soon as he had a loss, he'd let that mother go and go and go, hoping it would come back and be a winner. So at the end of the year, CTCR, he won the best win over loss ratio. He had 67% wins, but it was a losing year. Now, guess what the advertisements were the next year, which were very truthful? Ranked number one by CTCR in wins over losses. Well, now to a naive person, that's where I want to go. But, but the bottom line is, is what's significant. What causes the losses are simply that we're not perfect. And, and incoming new information. The biggest key that we can talk about is let this incoming information organize itself and react to the market. Some of you may remember the, um, uh, black comedian Flip Wilson, who used to talk about the Church of What's Happening Now. Well, what we want to do is trade the market of what's happening now. So we don't consider what we're doing technical. Now, our, our indicators are absolutely totally 100% unambivalent. I mean, if we took the 500 people that have gone through the tutorial and showed them a chart, they would pick out the exact same indicators. How you use those indicators is something else, because you may trade a five-minute, I may trade a 30-minute, or I may not trade that, or whatever. So it, it's, it's very important. Um, I think the most important thing we could say today is that the key to trading is to give up. It, it's not to outsmart the market, not to outsmart other traders, but simply to give up what your expectations are. It, it's, it's almost a, a Zen Buddhist kind of thing. Um, it, it's not that you're trying to control the market or outsmart it or overpower it or anything else. It's like the market is a dog, and I want, I want to be the tail on the dog, and I just want to follow the dog everywhere it goes. Now, uh, my friend Tom Demark says he wants to be the nose on the dog, and the nose is what often times gets in trouble. And I would rather be the tail than the nose.

Question: So, Bill, is this a mechanical trading system or a black box?

No, this, this, the question is, is this a mechanical or black box trading system? Absolutely not. The indicators are automatic. There, there's no interpretation of the indicators. There is some interpretation of how, how much you want to go, how much asset allocation, how many you want to go, uh, how many contracts, how much you want to load up. But the, the indicators themselves are absolutely unambivalent. It is not mechanical. Uh, it, it, for example, one of the things we know is that 85% of all of our whiplashes, talking about losses, 85% of all of our whiplashes happen in wave four. And we know exactly when wave four is going to happen. When, when the momentum tops out at wave three, that first bar after that, which which predicts the market, which predicts the price change and the acceleration. See, the acceleration changes before the price change, before momentum changes, and the momentum changes before the price changes. So if you got this market, which is a bowling ball going down the street, as soon as it starts slowing up, we start putting in orders to go the other way. Then when it turns around, we jump on the board. So the way you do that is a personal thing that sort of fits with your personality. For example, the, the most successful trader that has ever come to our tutorial, has been trading for 14 years. His last, and we swap P&L statements every month. His last losing trade, oh, I'm sorry, the last losing month was February of '88. And that was, what, eight, eight, almost eight and a half years ago. That was his last losing month. That month he lost $45. Since then, he has not had a losing month. His worst month since then, now here's a guy who 14 years ago started out with $25,000. His worst month since then was a net profit of $775,000. And he's paid $60,000 that month in commission, and $775 was his net. And, and he has not added anything. He's, he started trading the, he started trading in 1982. The first thing he did, he came to the very first workshop that I ever did, and we became friends, and we visit every year. And he's, and, and now this is pinnacle. This is not average. Don't let me again lead you astray. This, this, and he makes more money than I do. Um, but if you, if you call him up Monday, or if you go to his office Monday, he's probably got a telephone on each ear and a telephone down here. And I don't trade that way. I like to trade very peacefully. I, I like to trade with classical music. I don't like telephones ringing. And I have a dog, a dog, and a Siamese cat in the trading room with me. And, and I'm very, it's very, very calm there. And that's, that's my style. So how you trade is not mechanical. You trade. One of the things that we try to do in our tutorial is find what time, what time you're you're most comfortable with, where your intraday daily trade, and what kind of trading you are most comfortable with. Because if you're uncomfortable with your trading, then it becomes a fearful thing. And if you're running a fear program, you're going to do exactly the wrong thing. You're going to be consistent. A fearful trader is the most consistent trader in the whole world. The only problem is we buy the tops and sell the bottoms consistently. Yes.

Question: Bill, on your fractal breakout add position, where would your stop be at?

Ah, good question. And that's, uh, on, on the outline that's in there. Your question, the, the stop is two fractals back in the opposite direction. So if we had, uh, let's say that we had a, a fractal up here, and a fractal up here, and a fractal up here, all of these are fractals. Then you would go long at this point. You would go long at this point. And when you were long there, your stop would be two fractals back in the opposite direction. And it's very important that it be in the opposite direction. Yeah.

Other questions? Okay, um, the, the five dimensions that we trade, and, and we're really only covering one here. Uh, I would like to, um, see if I can get this to working. Ah, I believe we have it. Yes. Okay. Um, this, this is the, um, this is the S&P daily through yesterday. And what I would like for you to, to see in this is, um, that there, there is a fractal right there. Does everybody see that? But that is not a fractal down here. I don't think that bottom of that bar right there is 540. Uh, the bottom of that bar is five. Yes, that is, no, that is not a fractal. We need one more up. So tomorrow, on a daily basis, now this is a daily chart. So tomorrow or Monday, we would have a buy at 694.25. The high of that is 694. The question about the, the stop, then the stop would, this is one fractal back. This is the second fractal back here. If there is a discrepancy, if the second fractal back is closer to your price than the first fractal, you would go to the furthest fractal. So to answer your question, really technically and precisely, your stop is the furthest back of the last two fractals. Usually, it will be two fractals back. And, and what you're, what you're seeing here in the gray bars and the black bars and the red bars are, are part of our dimensions, which we analyze the momentum that the market has. And it's very, very simple. Um, it, it's in the book, and, and everything we've talked about is in the book. The, these we call squats, greens, fades, and fakes. This tells you exactly what the markets, the reaction of the market to the volume. Uh, the volume can cause very different things. Um, and announcements can cause very different things. We don't trade. One of the things that we quit doing about, uh, eight years ago, and, and our trading immediately improved. We don't read any current news at all. We don't watch FNN. In fact, I'm, I'm sure you know what CNBC FNN stands for, don't you? Can Never Be Correct Financial Neurotic Network. Um, and remember, those guys don't get paid for telling the truth. They get paid for words. They get paid by the word. Same thing is true on your computer. So we don't watch FNN. We don't read The Wall Street Journal. I haven't read a current Wall Street Journal in the past nine or 10 years. The most of the ones I read, I find on seats in an airplane that are day old, and I'll read those. I like reading it, but I will not read anything that has current information. And, uh, I don't subscribe to any newsletters. I, the only thing I look at ever is is a chart just like this. What this tells me is the Ral. This line here is a balance line. The balance line is simply a 13-bar smooth average that's offset eight bars in the future. The balance line is where the price would be if there were no new incoming information. So here there was some new incoming information that's putting the, the price up. This is the momentum chart. The momentum chart is a 5-34 oscillator. And all that is is a 34-bar moving average that is subtracted from a five-bar moving average. And this is what we count the Elliot wave on. And this thing is, is as close to infallible as any indicator I've ever seen. In the last, uh, three or four years, we've looked literally, our staff has looked at literally tens of thousands of charts. We found two errors. One was in a 10-minute sugar chart, one was in a 15-minute cocoa chart. Both errors were less than 5/100ths of a point in the wrong direction. The bottom chart here, this is the acceleration. This is like reading tomorrow's Wall Street Journal on any trend move. And, and I mean that seriously. Any trend move can be detected here on the accelerator before it's detected on the momentum, and will be detected on the momentum before it's reflected in the price chart. So we call this tomorrow's Wall Street Journal.

Any other questions? Yes. Works on equities too? Yes. Uh, the question is, does it work on equities? We are in the process of completing a book applying this to equities right now, and that should be out, uh, very shortly. But yes, it does work on equities. As a matter of fact, it really, um, on high-cap equities, on high, high volume stock, it really tends to work more precisely than it does in commodities. And we do a lot of things in equities, uh, with this material, like covered call writing and, uh, uh, rolling over and a lot of things like that.

Other questions? Yes. Your momentum is a 5-34 MACD. How do you calculate the acceleration?

Okay, the question is, the momentum is a 5-34 MACD. It really is. When, when Jerry Appel invented the MACD, the, the default that was first, um, programmed in the computers was an exponential moving average. The exponential moving average does not work as well as a simple average. So this is really an oscillator. So it's a, it's a, it's a simple average, a 5-34 oscillator. The accelerator would make it an MACD. The bottom accelerator is simply a five-bar moving average of that difference. So if you combine the two, it would be an MACD. But if you use an MACD, you need to go in and, and program it to be a simple average rather than an exponential average. And that does make a difference. It makes a difference in your profits. Does that answer your question? It's a five-bar moving average of moment? No, it's a five-bar moving average of of the, yes, of the difference between the five and the 34, exactly. So it is a five-bar. All we've done is we've, if you put this here on a line, it would look exactly like an MACD, exactly. So we've, we've taken the line of the MACD, made it into a histogram because it's just easier to see on the chart. But this is all we look at. We, we, uh, we do not, um, uh, get out of the market because of announcements. We, in the last seven years, we have had one occasion where we had a limit move against us. That was two years ago, last October. We were short all the grains, and they came out with a, um, a food announcement or a crop report, and it went, went against us. Every other limit move in the last seven years has been in our favor. This will anticipate what the bonds and stuff are going to do.

One more question. Can you explain how you use DM, the momentum, to do your W?

Uh, yes, I can, but I can't because we only have two minutes left. Yes, but, but it, it, it talks about it in the book if you'd like that, or if you call our office or, or do our email or, or web page, we'd be happy to send you a lot of material.

Question: Yes. All your five dimensions from those three charts?

Yes. Yes. We do. Yes, we do. The, the fractal is one dimension. The, we, we have a re, a initiating fractal, a breakout, and a responsive fractal. The balance line between the two, strange attractors are here, the momentum's here, and the accelerator there. So that's our five dimensions. Yeah.

One more question, and then we need to. Could you tell us about your tutorial?

The question is, could, could I tell you about the tutorial? Basically, very quickly, is that we, we send out a home study package, which is a three-month package, which has a, contains the book, a 300-page manual, a chaos workbook, which tells you everything to do every day for the 90 days, 12 videotapes, which tells you exactly what charts to look at, eight audiotapes, three, three computer discs. And then you come to a tutorial. We have a staff of six that conducts a tutorial where we work with you. We, we ask you to come prepared to trade your own account on a one-contract basis. And then we support you both before the tutorial and after the tutorial. Once you join, come to the tutorial, you're a member of the family. Again, if you want more information about that, call us, or there's some at the back of the room.

Okay, uh, the time is just about up. Let me summarize very quickly. The most important point I would like for you to take away from here is the difference between how you handle new information. For example, in psychology tells us that anytime you're overwhelmed or bored, it's always because you're trying to fit new information into old categories. That's what we've all been taught in school, at home, every place else. Using the science of chaos, we are allowed to let that new information organize itself. Then we don't get in our own way. The other thing that I'd like to leave you with is when you're trading, make sure that you trade in such a way that you really don't care which way the market goes. If you do that, you're going to be a winning trader and one of the top three to 5% of all the traders in the world. Thank you very much for being here. I appreciate you listening.