In this edition of Q&A we talk to Trader and Author Ross Beck.  Ross's expertise is in the Gartley pattern and Market Geometry. Ross is a Fellow of the Canadian Securities Institute and a member of the Market Technicians Association in the United States.

Q. How did you get into trading / investing?

A. To be honest, in my twenties I was terrible with money….I couldn’t save a dime. I accepted the advice to turn my weakness into a strength and started studying everything I could get my hands on in the field of investing.

Q. How long have you been trading the markets?

A. 15 years.

Q. Were there any authors, market teachers that influenced your style of trading as you started?

A. I was a fan of Peter Lynch to begin with, then I moved on to Elliott, Gann, Gilmore, Miner, Pesavento and Jenkins.

Q. What was one of the most common mistakes you made when you started trading the markets?

A. Impatience, arrogance and “revenge trading”.

Revenge Trading: Revenge trading is when you get into an emotional tussle with the market and become overly aggressive with trading. You've suffered some losses and you are understandably upset about it, so you set out to get revenge on “Mr. Market”, the one who took your money away.                    

Source:  About.com

Q. Which exchanges do you prefer to trade and why?  

A. One Chicago. I love single stock futures… 20% (or less) margin to trade U.S. equities. Yes, there is little to no volume, but they have electronic market makers committed to providing liquidity. I’ve never had problems with One Chicago.

Q. Are there any markets you won’t trade and if so why?

A. I will not trade open outcry markets. Electronic markets reduce the ease of front running by floor traders.

Front Running:  Front running is the illegal practice of a stock broker executing orders on a security for its own account while taking advantage of advance knowledge of pending orders from its customers. When orders previously submitted by its customers will predictably affect the price of the security, purchasing first for its own account gives the broker an unfair advantage, since it can expect to close out its position at a profit based on the new price level. Front running may involve either buying (where the broker buys for their account, before filling customer buy orders that drive up the price) or selling (where the broker sells for its own account, before filling customer sell orders that drive down the price).
Allegations of front running occasionally arise in stock and commodity exchanges, in scandals concerning floor brokers and exchange specialists.                                     

Source:  Wikipedia

Q. What time frames do you aim for your trades (short term, mid-term, long term, combination of all 3?)

A. Ideally, I like to trade Gartley Patterns on the 360 minute or daily chart.

Q. Do you utilise any fundamental analysis in your trading, or do you use Technical Analysis exclusively?

A. Technicals only. I’ve always said, “Technical analysis works best in the absence of fundamental shocks to the market.” In other words, sometimes fundamentals are driving the markets; typically after expected or unexpected news. Don’t expect to use technical analysis during these brief periods when the market needs to ‘reset’ itself. Once the markets reset and the dust settles, then technicals take over again.

Q. What is the most important lesson you’ve learned as a trader so far?

A. Use your ego as a contrarian indicator.

Q. Do you utilise leveraged products such as CFD’s?  

A. I love leverage! We don’t have CFD’s in Canada and the US but if they did, I would be all over it. We do have single stock futures, a closely related cousin.

Single-stock futures (SSF's): are futures contracts with the underlying asset being one particular stock, usually in batches of 100. When purchased, no transmission of share rights or dividends occurs. Being futures contracts they are traded on margin, thus offering leverage, and they are not subject to the short selling limitations that stocks are. They are traded in various financial markets, including those of the United States, United Kingdom, Spain, India and others. South Africa currently hosts the largest single-stock futures market in the world, trading on average 700,000 contracts daily.

Source:  Wikipedia

Q. Do you utilise any hedging products such as Options?   

A. My opinion is a stop loss is cheaper than an option so, no.....I don’t use options for hedging. If the market takes out your stop, your trade setup is usually invalid. Waiting for the trade to work by holding on to an option usually makes a bad trade worse.

Q. Can you give the details of one of your best trades (setup, entry, exit, etc).

A. I purposely try not to focus on individual trades versus a series of trades... you can't see the forest for the trees. I look at a series of trades over weeks, months and years to determine if a strategy is successful or not. My best series of trades was when I traded for 3 years without a losing month. Yes I had losing days and weeks, but not a losing month in 3 years!

Q. If you had to pick 3 things no trader should be without, what would they be and why?

A. 1) Enough capital out of the gate. Most retail traders think, I will make some money first, then I'll use risk management.  2) Risk management. Use a small percentage of your total trading capital on any one trade.  3) Diversification. Don't put all your eggs in one basket.   

Q. Can you tell us how you came across the Gartley pattern and what effect did it have on your trading?  How does it differ to Elliot Wave?

A. I came across some books by Larry Pesavento in the 1990's on the subject. The impact on my trading was dramatic once I applied proper money management rules to the pattern. Over the years I have continued to tweak it to work even better. The Gartley Pattern is different from Elliott Wave in that the Gartley is only focusing on an impulse wave followed by a simple ABC correction. If we apply this simple Gartley filter to our Elliott Wave trading, we will often hit wave five or wave three. I believe that the Gartley Trading Method is a valid replacement for people that have been unsuccessfully trading Elliott Wave.

Market Analyst: To view the Gartley Pattern in Market Analyst click here.

Q. You also have expertise in Stock Market geometry.  Can you explain a little on the concept and how it works in practically trading the market?

A. I believe that Geometry has always been the underlying technical cause of significant reversals in the financial markets. The charts appear chaotic and humans instinctively try to make some order out of them. On the subconscious level, many are making trading decisions based on geometric patterns on the chart without being consciously aware of it. On the practical level, to take advantage of these patterns, you have to start looking for proportional relationships on the charts related to circles, squares and triangles. I give these shapes the Pythagorean names of Dyad, Triad and Tetrad. Finding these shapes is a skill that traders need to develop over time... sorry there is no weekend seminar that will unlock the key...it takes time and hard work.

Q. In the last few weeks we’ve seen a steep decline in the value of the US Dollar.  Can you offer any commentary on the cause of this decline, and what effect is this having on local trader sentiments about the strength of the financial system?  

A. There are two great books you should read on this subject. The first one is entitled "Empire of Debt" by Bill Bonner and Addison Wiggin. The second is a book called "Revelation" written by a fellow named John in 96 C.E.

Q. Do you see this effecting the way investors in the US operate in local or international markets?

A. I believe that Americans will become less 'patriotic" and start trading financial products in other countries. This might be the time to be short US exchanges and long foreign exchanges.

Q. Is your new book The Gartley Trading Method (italics) suitable for novice traders to read or does it require some experience in the markets to be fully beneficial?  What knowledge were you hoping to impart to your readers?

A. The word novice is good; the Gartley Trading Method requires some experience. If you didn't know what I meant about long and short, you might want to start somewhere else. The purpose in writing the book is to prevent those of you that know enough to be dangerous, to have a fighting chance. I also wanted to update the current Gartley information in the public domain including new definitions for the pattern along with additional filters that improve its reliability. 

A detailed look at the technical pattern simply referred to today as the Gartley Pattern.

Gartley patterns are based on the work of H.M. Gartley, a prominent technical analyst best known for a particular retracement pattern that bears his name. In recent years, Gartley patterns-which reflect the underlying psychology of fear and greed in the markets have received renewed interest.

This definitive guide skillfully explains how to utilize the proven methods of H.M. Gartley to capture consistent profits in the financial markets. Page by page, you'll become familiar with Gartley's original work, how his patterns can be adapted to today's fast moving markets, and what it takes to make them work for you.

•    Examines how to identify and profit from the most powerful formation in the financial markets
•    Discusses the similarities, differences and the superiority of the Gartley Pattern compared to classical chart patterns including Elliott Wave
•    Shows how to apply filters to Gartley patterns to improve the probability of your trading opportunities, as well as specific rules where to enter and exit positions

Gartley's pattern is based on a unique market position where most traders refuse to participate due to fear. Ross Beck's book reveals how you can overcome this fear, and how to profit from the most consistent and reliable pattern in the financial markets.

Click here to purchase.

More articles by this author

How to Find Gartley Patterns – Part I19 May 2012

In this series of articles, Ross L. Beck, FCSI author...

Read More >>

The Circumscribed Objective19 May 2012

"The principle of all things is the monad or unit;...

Read More >>