Cloud Hopping is dedicated to the memory of your and our friend John Denver who died in his
experimental airplane on October 12th, 1997. John touched our hearts with his songs and his touch
of kindness reached out to all living things. Our memories are stronger than death as we search the
clouds and share past laughs. Far out, our Brother in Mankind.
One of the most used tools in trading is perhaps the chart. Charts not only show high prices, low
prices, current prices and other data, which can be used for derivative information generating. Each
trader has their own way of using and interpreting their charts.
Some make up their own charts while others will buy them from a commercial vendor. When it
comes to their use, Phantom remembers when charts were charted on a big graph in the pits
themselves for all to see. We continue our insight with Phantom on charting.
ALS – Phantom, sometimes I wonder how organized traders can be with all of the charts around
their offices. I always thought the less information you had to research during trading hours, the
better you would be able to react to the current market situations. What do you view with your
PHANTOM OF THE PITS – First of all you mean “Cloud Hopping!” On a Sunday afternoon I
would go out to the park and do my charting.
Let me reach over and turn this old radio on with this funny looking knob here. This big radio is an
old timer and it takes me back thirty years or so. As I turn it on you will hear WGN and the Eddie
Hubbard show with his theme song “Poor People of Brooklyn” playing in the background. I think
that his theme was a spoof on “The Rich People of Paris” but I don’t know that for sure.
I doubt that many old timers will be reading what we say here but just the same, the past is certainly
worth a view once in a while. A look back is good if for no other reason just old time’s sake.
On my Sunday afternoon charting this is what I would see with my charts! I would look to the sky
and see all of these kites flying. My chart would show this as volume. All of the kites on the ground
not in the air and the flying kites would be the open interest. The clouds in the sky would be my
price on the charts.
I would chart all of these with a connecting line from all of the clouds in the top part of the chart
and volume and open interest on the lower parts of my chart.
As I saw the movement of the clouds in my sky market I would place another chart point either
higher or lower depending on whether an existing cloud moved higher or a new lower cloud formed.
Anytime I could get a divergence from the clouds highs and the open interest of kites and volume of
kites; I would get a signal to sell Sunshine futures.
My father would ask me what I was doing, as he would always pick up the trash from our picnic
when the wind would blow it away. I would answer him and say “Dad, I am CLOUD HOPPING!”
I got pretty good at cloud hopping and sunshine futures as I could predict when it was going to get
cloudy again. I think I was all of thirteen at the time. That was my first introduction to charting.
I tell you this little insignificant point of my early charts because I have seen just this week seen
examples of just the same things in trading signals from traders. It may not make much sense most
of the time to most of the people but if it works, who am I to argue. My cloud hopping worked for
There are advantages and disadvantages in charting. When you use them to look back to get signals,
you are setting yourself up to believe you can actually be more right than wrong.
It is possible but you must never forget rule one regardless of how accurate your chart indicator
shows over the past. Just because it worked nine out of the last ten times does in no way suggest
that it will stay ninety percent accurate. Protect your positions at all times.
I think the main advantage which, I see in charts is that you can plainly see what will be dictated to
other traders for them to think at certain points. You will remember that I said I don’t totally agree
that the market is always right at all times but that is what we must trade with or against.
How many times have you seen public sentiment be a massive majority of opinion one way or the
other? What happens? More times than not the thinking was wrong.
In charting I have to say my strongest signals are when support or resistance is broken and thinking
is in the majority against what is happening to that support or resistance.
I don’t want to go into specific type charting and indicators as there are so many of them and so
many ways to interpret them. I will try and point out what I think is useful to all traders the most. I
could explain each type of indicator and charting process but that serves no purpose.
Each trader must decide his or her own criteria for charting. My charting is based on knowing what
the signals of each type indicate to other trades more so than to myself. I am always looking to find
what is the edge to me.
I don’t care about what the charts indicate if they are not my tools but since others do use them, I
must be aware of those indicators. I need to know what other traders are thinking.
I don’t position opposite to my signals ever but that doesn’t mean I don’t position opposite to my
fellow trader’s charts and indicators. My criteria takes into account the other signals though not
directly a signal indicator to me.
There are many trading plans based on various charts and indicators, which can be accurate over a
period of time. The biggest problem with the dependable plans is that rule one and two are not a
part of the plan and the traders never get to trade in the long run.
The trade plan may have what they call money management but that is always a weak point in the
plan. Drawdown eventually demoralizes the traders. In the end all is lost.
ALS – Do you have any specific advice on using charts?
POP – Yes, when you see what most charts give you, it is clear that everyone is looking at the same
data to establish a method of being the most accurate.
The key in usefulness of charts as far as I am concerned is that you take everyone else’s chart with a
grain of salt and establish your own charting to be reflective of data not usually known to others.
All bar charts show the same things. It is a daily chart of high, low, close, open, volume, open
interest and other moving averages or indicators. This is one reason I prefer a chart like a point and
figure chart. It removes the daily bar graph points as the most important for that day.
Let me ask you what would you think of a chart, which takes the same parameters as a standard, bar
chart but your daily high, low, close and open data had a time frame different than daily? You
would laugh. I like that laugh! It tells me I have no competition with the idea.
I will give you an idea and an example here. Let us say you take and make a chart, which starts one
hour and fifteen minutes prior to the close of a market. We will justify this by saying that the most
important trading data for a day is in that last part of the trading day. We will call this the opening
for your next day’s chart.
One hour and fifteen minutes of today’s trading is already on tomorrow’s chart. We will call this
tomorrow’s support and resistance. We continue to chart tomorrow until one hour and fifteen
minutes prior to the close. This closes out our day’s trading chart.
Ok I think you see what I am getting you to think about. Now keep in mind I am not giving you my
way of charting but using this as an example of how to change your behavior when it comes to
Most traders will never chart this way for several reasons and that to me is good. They can’t get the
data this way as they may only get it out of a newspaper, delayed or through a broker. Other reasons
exist which prevent them from getting a different outlook chart.
I feel you need a jump on tomorrow’s trading to get the edge. The edge to me is important but not as
important as execution. It is just that with the edge, you can get better execution. You are ahead of
the game because you are in front of the day traders, funds, scalpers and position traders because
you are not using their data to follow them.
Instead you are using your data to look beyond their view. By using rules one and two, you can
establish a plan which is a little more remarkable than anyone would think.
You will have to do back testing and research and most traders can’t even come up with that data
yet even today. I guarantee in the future there will be those who look at what I have done lately and
say it is time to make the computers earn their keep. You see the frontier is just now opening!
The sharpest trader with the most intuition will win here. I want you to remember where the idea of
“Different Outlook Chart” came into play. It started with me when I was thirteen. It can start with
Do your research! Do it again! Learn what different outlook charting can do for your trading plan. I
have given ideas of what my criteria is in trading certain situations so that an understanding of
where I am coming from shows up. Vary your data times. Use fifteen minutes, half hour, half day,
first hour and other time frames.
I am giving you a gift here and someday it will hit you. Just don’t take too long to see what is
behind all three doors. I still want to point out that we will see different outlook charts as the years
go by and they will get better and better. There will be a day when they are followed closely enough
that they no longer have the same value.
In trading you need to change the odds to your favor. By using rules one and two you are moving in
the right direction. By using your own mind, you are doing what that computer programmer did
many years ago. You are looking at a different view. An artist will view his subject material from
all angles. Shouldn’t you?
ALS – Aren’t you making it a little dangerous by telling traders to go find your own plan and make
your own charting system?
POP – I believe I am only making it a little more difficult in showing that trading is complicated
when it comes to getting the edge in trading. I don’t expect them to take entry and exit signals,
which they devise without using rules one for protection and rule two for enforcement of their new
I believe in the small trader! I know what the potential is because I know every trader started out as
a small trader. Not one big trader started just big. You must start. There is no better place to start
than at the start line. Only then can you say you went the entire course.
I want to impress upon you the importance of my belief in the small trader. I believe if someone
important can have faith and expectations in those around them, it will make a difference in their
lives. A good mentor knows that their guidance will grow up one day of those who benefit from
their convictions of belief.
This story I am going to tell you was told to me by a very brilliant mind. I like the story better the
way I like to tell it but will tell it the way it was told to me.
One year a math teacher in the geometry class had more students that usual. Thirty-eight students
were just to many to have the time to give one on one guidance as required. Not only were there too
many students in this particular class but the teacher had more bad students than usual.
One particular student had never gotten grades above D’s in his entire school years. His name was
Robbie, short from Robert. Robbie was the class clown and had been his entire life because that is
what the other students expected of him. He had no interest in school and would brag that he would
quit school at the age of sixteen in a few short months.
The teacher had three Robert’s in his class. Rob, Robbie and Robert. It was pretty easy for the
teacher after two weeks to keep the Robert’s clear, as the one who went by Robert was the top
student in math.
Five weeks into the school year the first PTA meeting was coming up. The teacher told each of the
students to have their parents come to the PTA meeting. That night only about a third of the parents
The teacher knew by how well the students were doing just which parents would most likely show
up at the meeting. The teacher took three to five minutes with each set of parents to chat and find
out a little about them.
The last parents were a little backwards and shy but the teacher shook their hands and made the feel
at ease. The teacher never got an answer when they were asked their name so the answer was never
known. The parents asked the teacher “How is my Robert doing in class?”
The teacher thought and then answered “I have never had such a good student in my class who
takes so much interest and is a delight to have as an example to my other students. Why your son is
a living example of those who will be leaders in our future.
It’s just wonderful to know that in our lifetime we will see youngsters like Robert grow up to make
us all proud to have known him!”
The parents of Robert stood a little taller and smiled as they left the PTA meeting that night.
Over the next three months going into the end of the first semester the teacher noticed his students
doing better than he had expected up to this point. Trying to comprehend how his teaching had
improved and what he had done differently, the teacher spent more time trying to improve. At the
end of the school year, the teacher was in his own glory as no student had failed.
Not even the class clown Robbie. In fact Robbie had gotten all his assignments done, taken a math
scholarship exam and finished at the top score nation wide. He had won a math scholarship as a
sophomore. The teacher was really proud to have taught so well.
The last day of class, Robbie waited until everyone had left and then headed to the teacher’s desk to
talk. Robbie held out his had and said, “My Mother told me what you said about me! I have never
had anyone ever want me in their class before or even cared if I learned. Thank you for giving me
insight into my life!”
The teacher began to cry as all the efforts to improve as a teacher reflected back to the PTA meeting
at the beginning the year. You see the teacher thought when asked by parents how Robert was doing
it was Robert’s parents and not Robbie’s parents.
The teacher had made the biggest mistake of his life at that PTA meeting by assuming he was
talking about the right Robert. Not only was it the biggest mistake but it was the best mistake of his
Can you imagine a grown adult crying? Isn’t it refreshing to know we as adults can learn from
youngsters and it’s ok for us to cry! At one time or another in life we see a flash of light in thought
looking back and realize what we have just been given.
ALS – Pretty touching. You say you like to tell it differently?
POP – I like to substitute Robbie’s name and instead use “a brilliant trader.”
You must understand that somewhere as a trader the light must come on for you. There will be a
point that the biggest mistake of your trading career will be the best mistake you have ever made.
I personally want that student to come to me and say “Phantom, no one has ever wanted me in their
class before or even cared whether I learned about trading. Thank you for giving me insight into
I do care and I have only one thing left I wish to become. A better teacher!
ALS – How do we go on from here? I think your pep talk has caught me by surprise. I don’t know
what to ask right now.
POP – I’ll go over point and figure charting next. Go and enjoy a walk to the top of your hill with
ALS – Ok, I would like to reflect upon what you have just given as insight. Not just for the book but
I also want to reflect for my own personal evaluation right now. Thanks
The next interview:
ALS – On point and figure charting one question I see often is what size to make the boxes?
POP – The fact of P & F charting is that the smaller you make the boxes and retrace criteria, the
closer you will see the market characteristics and order flow. To learn the nature of trading and each
market at first I suggest the smaller box sizes. Keep in mind for the retrace that it must have some
significance beyond a normal bid and offer slippage.
Each market can be a percentage of daily-expected moves. I would say that as an example in
soybeans that if the daily range is usually 9 cents, I would use a 1 by 3 box. Each box is one cent
and each significant retrace has to be at least 3 cents. This pretty well says to take ten percent of the
daily-expected move as the box size and thirty percent of the daily move as retrace requirement.
As time goes by you will want to extend the sizes to larger sizes. You may even keep multiple P &
F charts to compare. Today computers can do this for you if you are set up for it. It is important to
realize that at one time or another each trader will try and improve his trading office.
Is it good to improve your data before your success or after your success? The answer is a catch 22
as you will improve your trading as you improve your understanding of how markets work. Most
traders do not want to extend the costs at first due to limited funds.
What really can you do with your data if it is based on someone else’s criteria and information? You
can only be a derivative trader of that restriction.
I am not going into how to specifically use P & F charts but many good books on the subject will be
a good library add for you. Learn the highlights of support lines, resistance lines, three wave
recognition and breakouts. You will be able to see what the trade does each day within the market
parameters. This is important to see first hand and P & F charts are the perfect way to do it.
You are better off if you do your own charting rather than using a computer until you understand
and see what important data is available on these type charts. I also suggest that if you had to use
only one chart it would be a point and figure chart.
I don’t mean to be weak on giving knowledge on charting but it is critical that each trader come up
with his own thoughts and ideas. For someone to give you their thoughts just limits a trader’s
horizon of what is possible for them. Do your own homework and decide what your charting shows.
On some of my programs on charting and signal criteria, I narrow it down to inputs of importance. I
could have as many as 64 inputs. I can weight each one according to how important they are or I
can have them in one of two states only. Some of my criteria input is qualified by going through
several doors first.
In other words if the criteria is met, that input must go through the next set of criteria. It sort of ends
up like an eye examination as you expect one total answer in the end.
Charts and criteria are nothing more than the best set of eye glasses at the end of the examination.
You will wear those glasses after your exam. Same in trading, you will use that data after your
criteria is set.
Why argue with it? Many traders are always making exception. For example the last time they used
their criteria signal they lost money. They won’t make the next trade. The big one! If you lost
money last time and aren’t happy with the signals you must go back over your program or criteria
and reintroduce the correct data that you expect to be required.
If at any time data is excluded which you require, your signals are useless. Get the total picture on
your plan and not just the pieces. Have a definite signal and not a maybe signal.
There are times when nothing you do seems to work. When things continue to go bad, I can say to
you that you have violated another known fact. Diversity helps reduce risk but only in the long term.
In the short run we are talking about luck, both good and bad. Believe me that if bad luck comes
first you are finished if you only depend on luck.
Charts are not an answer alone and have no use if your trades can’t be executed promptly. Anytime
you can’t as a trader do what is required to get the position on, you will take the scales the wrong
way. Remember you must be in before you can get a correct move.
ALS – What kinds of charts do pit traders use mostly in trading?
POP – I have seen P & F charts bar charts with half hour, ten minute, down to 1 minute used. I have
also seen several of the new popular volume based price charts as well as different color charts with
indications of momentum along with price.
ALS – What type do you use when you are in the pits?
POP – I never use anything but mental graphs when in the pit. The mental charts are more point and
figure charts. They are really easier as I am looking for the third wave to position against the public
on the third wave in my desired direction. It works for add on positions well and keeps my entry
cleaner for protection requirements.
I don’t go to the pit often anymore unless it is to be an exceptional day indicated by my signals. I
will go to the pits when I have an unusually downward bias indicated, as gravity seems faster to me
in those markets, which reverse to the downside.
Most of my charts are kept on computers but that doesn’t mean the computer gives me my signals
during the day. I like to have them before the day begins.
It is more mechanical that way and not ever emotional that way. That is an important point in
trading to remove those human elements as best as possible. Only then can you truly be objective.
Look at it this way. When it is no longer your money, it is easy to do the right thing. But when it
isn’t your money you can also be careless.
Just follow the rules and your signals without exception. If they don’t work in the long run, you are
not using the correct system or you’re not using my two rules first and foremost.
ALS – You are still going to have arguments about your two rules as to whether they work for all
POP – We wouldn’t have markets if everyone agreed on a plan. We would have nothing but limit
day moves everyday. We really need various ideas and concepts. I just want one, which will work
over time and keep my drawdown smaller than when I first started.
I must have a rule which allows me my freedom to know regardless of what happens today, I will
be here tomorrow and tomorrow and next year and next decade if I wish to be.
Don’t ever think that no one ever cared whether you learned anything in trading. I do care and I
insist you take full responsibility to learn the correct knowledge. That knowledge must be not only
criteria for trading but also the correct method of changing your behavior to that which are required
to be successful in the long run.
Your trading career should be a long-term expectation on your part. A short time frame is not
acceptable in trading. I am not saying that short-term trades are not acceptable but that you must
look beyond one day in your trading career.
Some of the best traders started out broke! And then they got more broke. Until success!
” I believe if someone important can have faith and expectations in those around them, it will make
a difference in their lives. “—POP