Listen to the Market
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Profile of a Market Participant
First appeared in the Australian Technical Analysts Association Journal in 2004
Ivan Krastins, aka The Investment Educator, is a founding member of the ATAA, former editor and contributor to our newsletter, trader, educator, mentor and author of Listen to the Market. He has been involved with the markets since the early 1980’s both here in Australia, as well as overseas, having traded shares, options, futures and FX. In the highly regarded United States Stock, Option and Commodity Trading Championship in 1984, Ivan’s performance was acclaimed by the Australian Financial Review as “… a record for an overseas competitor”.
In 1995, Ivan was honoured by being invited to be the only keynote speaker from Australia at the International Federation of Technical Analysts (IFTA) annual conference in San Francisco. Other speakers at the conference included well-known traders and analysts such as Steve Nisson, Ed Seykota and John Bollinger. Ivan has appeared on Asia Business News (Singapore) and was profiled in the Australian magazine – Your Trading Edge.
Ivan currently resides in Vanuatu, and works with students one on one.
Life Before The Markets
It would appear that Ivan was destined to be involved with the markets from quite an early age. Whilst still at high school Ivan bought some shares in a company that most kids know something about, at least from one perspective – Mr Whippy Ltd. His first foray showed him that speculation could present a different career path to that being traditionally taught at school. Long at two cents and out at ten a couple of months later (beginners luck maybe) seems to have set the tone for the rest of Ivan’s life.
At the age of 19, Ivan made his first real estate trade. Whilst on holidays on the Gold Coast he followed the signs to a new land subdivision and proceeded to go long a residential block of land, totally on margin. In other words, he borrowed the entire purchase price (including the legal fees). When he received an offer to sell the land for two-and-a-half times what he paid for it a year later,
it was an offer that he could not refuse. It appeared that trading was in his blood.
After completing his National Service stint, Ivan’s journey was to take him into real estate, initially as a agent, then into “spec” building and finally into dealing in inner city properties in Sydney and Melbourne. The “spec” building experience of getting an end-purchaser for a house and land package before he bought the land prepared Ivan for selling short in the futures market later in life. Similarly, dealing in inner city properties served Ivan well, not only from a financial perspective. It required patience to go and seek out the right properties in the right area with the right potential; not dissimilar to a trade in the financial markets. It also necessitated being dispassionate out the property and one’s personal involvement in the transaction.
Ivan first heard about the futures markets through a friend, a broker on the Sydney Futures Exchange. When the concept of trading the futures market was explained to him, Ivan’s immediate response was to say “That’s gambling” and promptly opened a trading account. The fact that money could be made when prices fall, as well as when they rise certainly appealed. Coming from the city and believing that milk came from a bottle, Ivan saw no choice but to gravitate to technical analysis as opposed to fundamental analysis. After all it seemed perfectly logical that everyone’s input into the market would have to become evident on a price chart as the participants put their money into the market.
Armed with printed charts and an introductory booklet on technical analysis, produced by a company that is no longer around, Research Technology, Ivan began trading the Live Cattle futures market in Sydney. This was back in 1981. Within about three months, the initial starting capital had grown by more than five times. “How long has this been around” was Ivan’s reaction, believing that he had discovered his new career path. Even at this stage, Ivan seemed to have the street-smarts in withdrawing his initial starting capital. That way, irrespective of what was to follow, he would be only playing with the market’s money and not his own.
Ivan then decided to visit the birthplace of the futures markets – Chicago. In fact, he decided that whilst he was going overseas he may as well visit as many stock and futures exchanges as he could cram into his planned three month honeymoon trip (and still be able to call the trip a honeymoon). Little did he know that he would later be returning to some of those exchanges to conduct his own courses!
Unfortunately, Ivan’s greed gland had also kicked in. He had decided to leave the money with the broker on the understanding that if something “good” were to come up in the market, the broker had the authority to take a position on Ivan’s behalf, and to share in the spoils, so to speak. The entire account has depleted in less than a week. That was to be another invaluable lesson for Ivan.
Not constrained by having a regular job, Ivan was able to devote a lot of time to embark on a self- guided intensive study programme. The first part consisted of getting as much daily historical data as he could on the most actively traded futures contract in the world – the US Treasury Bond futures. He spent the next six months, three to four hours a day constructing and analysing a daily bar chart of the entire history of that market. In fact, Ivan went one step further and plotted the weekly chart on the same graph as the daily chart, thereby discovering the insight that can be gained by viewing the two timeframes concurrently.
As he drew each bar, certain patterns began to appear. When the close of one day was in the top half of the day’s range, almost invariably the next day the market would trade higher. Ivan went on to discover/observe that if the close was in the top third of a day’s range, the probability was even greater that the market would be higher the next day. A similar phenomenon existed when the close was in the bottom half, or the lowest third of the day’s range; the market was usually lower the next day.
Ivan acquired a copy of John Hill’s excellent book Scientific Analysis of Bar Charts which presented similar findings. This encouraged Ivan to do more research in this area. Ivan discovered for himself the significance that the range plays in predicting, or trading, future price movements. One aspect that he still uses is based on the range being larger than the one before, with the close in the top third of that range and the high and low being higher than for the period immediately before it. This, and variations on the same theme, work as well today as they did twenty years ago.
Part of this road of discovery led Ivan to learn about the significance of where the open is in relation to a period’s high, or low. He found that a disproportionate amount of the time, the open is “very” close to the day’s high or low. This, however, was not enough for Ivan. He went on to establish and define what he termed ‘the elasticity factor’ of a market. That refers to how far a market must travel up or down from the open to ensure that most of the time the market would continue to travel in that direction for the remainder of that trading day.
Several years later, Earl Hadaday of Market Vane (publisher of the highly regarded Bullish
Consensus report in the USA) produced computer testing that validated the same concept. In doing his research of the futures markets, Ivan discovered a phenomenon which he dubbed the ‘three- dimensional approach’ which has the uncanny ability to highlight turning points in markets. Dawn Bolton-Smith spoke highly of this technique when it was first published in his book in the early 1990’s.
Ivan also formulated several bar chart signals (the open-close reversal and the pivot point) that have since become accepted as significant timing tools for traders. They were first published in Ivan’s book Listen to the Market, and have even been presented in technical analysis courses run by the Securities Institute of Australia. It may not be a well-known fact that Ivan was approached by the SIA in the late 1980’s to conduct his eight week course on technical analysis under the umbrella of the SIA. This was to be the forerunner of the current course being run by the SIA.
More invaluable knowledge by this stage had been gleaned from seminars overseas conducted by Welles Wilder (of RSI fame), Stanley Kroll, George Allan, Robert Prechter and others. Ivan was certainly performing the role of a sponge in soaking up as much information as possible. His increasing collection of books and publications led him to examine indicators and their role. Part of Ivan’s daily routine was now to calculate by hand the values for a whole array of indicators (ADX, MACD, Parabolic, RSI and Stochastic), and to plot them with the daily price bar. He did the same with his weekly charts. This enabled him to discover two addition signals that the RSI and Stochastic provide that were not presented by the originators of these indicators. However, in the end, he realised that the entire message from the market was contained in the price action, and that indicators were not necessary to be able to listen to the market.
Having progressed through charting software packages such as: Computrac, MetaStock, SystemWriter, SuperCharts, TradeStation, One-day-at-a-time, Nava Patterns, OmniTrader, Advanced Get, Visual Pattern Designer, amongst others, Ivan now uses a simple charting package.
Since his trading approach does not use any indicators at all, a simple, straightforward charting package is all that he requires. His trading approach merely looks to identify one of his twelve setups that indicate either a buying or a selling opportunity. This is the ‘looking’ part of his L.I.V.E.T.M. model. He then ‘investigates’ that opportunity for an entry mechanism, or a timing tool, to tell him where and when to jump on board. The penultimate step is to ‘verify’ that opportunity in terms of risk, before ‘executing’ the trade. The entire process has been streamlined to the extent where only about four or five hours are required per week to follow about twenty US futures markets. The rest of his time is devoted to training only a handful of people per year, as well as developing a lifestyle and trading retreat on oceanfront land in Vanuatu.