For the sake of those who’ve joined us recently and in the interest of absolute clarity for long time subscribers as well, tonight we’ll endeavor to make crystal clear what we mean when we state that:
“Our trades are never driven by expectations or opinions, especially our own. They are driven by and only by the market trend.“
We trade only in the direction of the Line of Least Resistance. Full stop. That rule is absolute, and it is sacrosanct.
For our purposes, the “Line Of Least Resistance” {we’ll often use the acronym “LOLR” to mean the “Line Of Least Resistance”} has a precise and objective meaning. It is not subjective.
The term originally came from Jesse Livermore who wrote a hundred years ago that:
There is only one side of the market, and it is not the bull side or the bear side, but the right side. Jesse L. Livermore
Livermore had come to understand what mattered if one is to accumulate significant trading profits. He had come to understand this:
One must align with the prevailing TREND of the market and then sit tight for as long as that trend prevails. The market will do the rest.
He wrote the following many times:
“It was never my thinking that made big money for me; it was always my sitting. Got that? My sitting”
Livermore knew of which he spoke – and wrote. He began his trading career in the 1890s with $5 earned as a “board marker.” In the Bear Market of 1929-1932, he amassed over $100 Million ($1.2 Billion converted to 2018 dollars).
He stated again and again that this was not the result of “outsmarting the market” On the contrary, it was the result of “Being right and sitting tight.”
Over many decades, we’d searched for a way of objectifying the “Line Of Least Resistance.” After years of trial and error with thousands of formulae and models, we developed the Seven Sentinels in 2004. We then, for many years, improved and tested the Sentinels in various timeframes from three-minute bars to monthly bars.
Of the seven timeframes that emerged,one particular set of Sentinels define the Line Of Least Resistance (LOLR) for our trading purposes, and in late 2017 we made a significant change in how we align with the Sentinels.
We now trade with the two-hour Line Of Least Resistance (LOLR) Sentinels exclusively and with no exceptions.
{Please note for sake of clarity that we use the term “LOLR” in two different but related ways: we use it- as had Livermore- to mean the “Line of Least Resistance” (the TREND) of the market. We also use it as the name of our Two-Hour Sentinels which we’ve developed to quantify that Line of Least Resistance in the Short-Term}
When all seven individual two-hour (LOLR) Sentinels register an uptrend at a two-hour update time (10 AM, Noon, 2 PM), LOLR produces a BUY Signal.
The (two-hour) LOLR is then in an Uptrend. The LOLR stays in an uptrend until all seven enter individual downtrends together at 10 AM, Noon, or 2 PM on any given day.
When all seven LOLR Sentinels register individual downtrends at a two-hour update time (10 AM, Noon, 2 PM), LOLR produces a SELL Signal.
The LOLR is then in a Downtrend. The LOLR stays in a downtrend until all seven enter individual uptrends together at 10 AM, Noon, or 2 PM on any given subsequent day.
Following is the singular Sacrosanct Trading Rule:
Our trading position can ONLY be in the same direction as the LOLR. Period. When the LOLR is in an uptrend, we can hold ONLY long positions or cash or a combination of the two. We cannot hold any short securities when LOLR is in an uptrend. Full stop.
When LOLR is in a downtrend, we trade ONLY short securities or cash or a combination of the two. We cannot hold any long positions when LOLR is in a downtrend. Full stop.
The relationship between the LOLR and the Daily Sentinels regulates our exposure level.
1. When LOLR is in an uptrend and is confirmed by the Daily Seven Sentinels in an uptrend also, we trade ONLY long positions. We can hold anywhere from 0% to 100% long; When LOLR is in an uptrend and is NOT confirmed by the Daily Seven Sentinels in an uptrend also (they are in a downtrend), we trade ONLY long positions. We can hold anywhere from 0% to 50% long.
2. When LOLR is in a downtrend and is confirmed by the Daily Seven Sentinels in a downtrend also, we trade ONLY short positions. We can hold anywhere from 0% to 100% short; When LOLR is in a downtrend and is NOT confirmed by the Daily Seven Sentinels in a downtrend also (they are in an uptrend), we trade ONLY short positions. We can hold anywhere from 0% to 50% short.
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