The Law of Charts - Trading Educator

Welcome to the Law of Charts.
This Ebook, created by Joe Ross, introduces you

to the basic formations of the Law, and what launched Joe’s successful trading
career.
The impetus, the driving force behind the law, is that of human action and
reaction to the reality of prices.
We are traders, and, just like you, we experience our winning times and our
losing times. We have no magic to offer you, but what we do offer is what we
have learned over decades of trading in many markets, using many methods and
techniques. We are survivors of some of the most volatile times in history.
Markets have changed drastically from when we first began trading.
However, the laws that govern the markets have never changed. The Law of
Charts dates as far back as the making of charts to depict the action of prices in a
market. Regardless of time frame, whether it is yearly, monthly, daily, or intraday,
you will see the Law of Charts in action. The formations, while not identical, can
be defined, which has made our presentation of the Law of Charts possible.
We are here to serve, as well as to trade. We hope you enjoy this adventure
through the Law of Charts. It is by no means complete. There is so much more to
be said, so much more to explain, which is why we hope you will go past the
basics presented here to delve into the depths of the law.
As with any other law of nature, knowing about the law is not directly profitable.
It is only by implementing the law that profit can be derived. Knowing about
electricity never made anyone any money, but harnessing the power of
electricity has made many fortunes over time.
Let’s begin our exploration of The Law of Charts. At the end, we will invite you to
take our online webinar course, which will enable you to go even deeper into the
law, and will show you how the law is implemented.
The Law of Charts (TLOC)

TradingEducators.com
© by Joe Ross
Re-transmission or reproduction of any part of this material is strictly 1
prohibited without prior consent of Trading Educators, Inc.
1-2-3 HIGH AND LOWS
A typical 1-2-3 high is formed at the end of an up-trending market.

Typically, prices will make a final high (1), proceed downward to point (2)
where an upward correction begins, then proceed upward to a point
where they resume a downward movement, thereby creating the pivot
(3). There can be more than one bar in the movement from point 1 to
point 2, and again from point 2 to point 3. There must be a full correction
before points 2 or 3 can be defined.
A number 1 high is created when a previous up-move has ended and prices have begun to
move down.
The number 1 point is identified as the last bar to have made a new high in the most recent
up-leg of the latest swing.

© by Joe Ross
The number 2 point of a 1-2-3 high is created when a full correction takes place. Full
correction means that as prices move up from the potential number 2 point, there must be
a single bar that makes both a higher high and a higher low than the preceding bar, or a
combination of up to three bars, creating both the higher high and the higher low. The
higher high and the higher low may occur in any order. Subsequent to three bars, we have
congestion. Congestion will be explained in depth later on in the course. It is possible for
both the number 1 and number 2 points to occur on the same bar.

© by Joe Ross
The number 3 point of a 1-2-3 high is created when a full correction takes place. A full
correction means that as prices move down from the potential number 3 point, there must
be at least a single bar, but not more than two bars, that form a lower low and a lower high
than the preceding bar. It is possible for both the number 2 and number 3 points to occur
on the same bar.

© by Joe Ross
Now, let’s look at a 1-2-3 low.
A typical 1-2-3 low is formed at the end of a down-trending

market. Typically, prices will make a final low (1); proceed
upward to point (2) where a downward correction begins; then
proceed downward to a point where they resume an upward
movement, thereby creating the pivot (3). There can be more
than one bar in the movement from point 1 to point 2, and
again from point 2 to point 3. There must be a full correction
before points 2 or 3 can be defined.
A number 1 low is created when a previous down-move has ended and prices have
begun to move up. The number 1 point is identified as the last bar to have made a
new low in the most recent down-leg of the latest swing.

© by Joe Ross
The number 2 point of a 1-2-3 low is created when a full correction takes place. Full
correction means that as prices move down from the potential number 2 point, there
must be a single bar that makes both a lower high and a lower low than the
preceding bar, or a combination of up to three bars creating both the lower high and
the lower low. The lower high and the lower low may occur in any order. Subsequent
to three bars we have congestion. It is possible for both the number 1 and number 2
points to occur on the same bar.

© by Joe Ross
The number 3 point of a 1-2-3 low exists when a full correction takes place. A full correction
means that as prices move up from the potential number 3 point, there must be at least a single
bar, but not more than two bars, that form a higher low and a higher high than the preceding
bar. It is possible for both the number 2 and number 3 points to occur on the same bar.
The entire 1-2-3 high or low is nullified when any price bar
moves prices equal to or beyond the number 1 point.

© by Joe Ross
LEDGES
A ledge consists of a minimum of four price bars. It must have two matching lows and two
matching highs. The matching highs must be separated by at least one price bar, and the
matching lows must be separated by at least one price bar.
The matches need not be exact, but should not differ by more than three minimum tick
fluctuations. If there are more than two matching highs and two matching lows, then it is
optional whether to take an entry signal from either the latest price matches in the series
(Match ‘A’) or those that represent the highest and lowest prices of the series (Match ‘B’).
A LEDGE CANNOT CONTAIN MORE THAN 10 PRICE BARS. A LEDGE MUST EXIST WITHIN A
TREND. The market must have trended up to the Ledge or down to the Ledge. The Ledge
represents a resting point for prices; therefore you would expect the trend to continue
subsequent to a Ledge breakout. See below:
CONSOLIDATIONS
A Trading Range (See below) is similar to a Ledge, but must consist of more than ten price
bars. The bars between ten and twenty-one are called Congestions. The bars from 21 and on
are called Trading Ranges. Usually, from bars 21-29, there will be a breakout to the high or low
of the Trading Range established by those bars prior to the breakout.

© by Joe Ross
THE ROSS HOOK
A Ross Hook is created by:
1. The first correction following the breakout of a 1-2-3 high or low.

2. The first correction following the breakout of a Ledge.
3. The first correction following the breakout of a Consolidation.
In an up-trending market, after the breakout of a 1-2-3 low, the first instance of the failure
of a price bar to make a new high creates a Ross Hook. (A double high/double top also
creates a Ross Hook).

© by Joe Ross
In a down-trending market, after the breakout of a 1-2-3 high, the first instance of the failure
of a price bar to make a new low creates a Ross Hook. (A double low/double bottom also
equals a Ross Hook).

© by Joe Ross
If prices breakout to the upside of a Ledge or a consolidating formation, the first instance of
the failure by a price bar to make a new high creates a Ross Hook. If prices breakout to the
downside of a Ledge or consolidating formation, the first instance of the failure by a price
bar to make a new low creates a Ross Hook (A double high or low also creates a Ross Hook).

© by Joe Ross
We’ve defined the patterns that make up the Law of Charts. Study them carefully.
What makes these formations unique is that they can be specifically defined. The ability to
formulate a precise definition sets these formations apart from such vague generalities as
“head and shoulders,” “coils,” “flags,” “pennants,” “megaphones,” and other such supposed
price patterns that are frequently attached as labels to the action of prices. Our online video
seminar, if you decide to take it, will take you much more deeply in to the Law of Charts and
show you several implementations of that law that are currently making money for numerous
traders around the world.
CONSOLIDATIONS
Sideways price movement may be broken into three distinct and definable areas:
1. Ledges - consisting of no more than 10 price bars

2. Congestions - 11-20 price bars inclusive
3. Trading Ranges - 21 bars or more with a breakout usually occurring on price bars
21-29 inclusive.
Trading Ranges consisting of more than 29 price bars tend to weaken beyond 29 price bars
and breakouts beyond 29 price bars will be:
• Relatively strong if the Trading Range has been growing narrower from top to
bottom (coiling).
• Relatively weak if the Trading Range has been growing wider from top to bottom
(megaphone).
We have written considerable material about breakouts from Ledges, primarily that since by
definition, Ledges must occur in trending markets, the breakout is best traded in the direction
of the prior trend, once two matching highs and two matching lows have taken place.

© by Joe Ross
The next discussion deals primarily with Congestions and Trading Ranges:
Under the topic of the Law of Charts, we have defined the first correction following the
breakout of a Trading Range or Ledge as being a Ross Hook.

© by Joe Ross
The same is true after a breakout from Congestion, i.e., the first retracement
(correction) following a breakout from Congestion also constitutes a Ross Hook (Rh).
A problem most traders have in dealing with sideways markets is determining when prices
are no longer moving sideways and have indeed begun to trend. Apart from an outright
breakout and correction which defines a Ross Hook, how is it possible to detect when a
market is no longer moving sideways, and has begun to trend?
In other writings, we have stated that the breakout of the number 2 point of a 1-2-3 high
or low formation ‘defines’ a trend, and that the breakout of the point of a subsequent Ross
Hook ‘establishes’ the trend previously defined.
However, while a 1-2-3 formation occurring in a sideways market still defines a trend, the
1-2-3 formation, when it occurs in a sideways market, is not satisfactorily traded. This is
because Congestions and Trading Ranges are usually composed of opposing 1-2-3 high and
low formations.
If a sideways market has assumed an /\/\ formation, or is seen as a \/\/ formation, these
formations will more often than not consist of a definable 1-2-3 low followed by a 1-2-3
high, or a 1-2-3 high followed by a 1-2-3 low. In any event, the breakout of the number 2
point is usually not a spectacular event, certainly not one worth trading.

© by Joe Ross
What is needed is a tie-breaker. The tie-breaker will not only increase the likelihood of
a successful trade, but will also be a strong indicator of the direction the breakout will
most probably take. That tie-breaker is the Ross Hook.
When a market is moving sideways, the trader must see a 1-2-3 formation, followed by
a Ross Hook, all occurring within the sideways price action. The entry is then best
attempted by using the Traders Trick ahead of a breakout of the point of the Ross
Hook. The Traders Trick is explained in great detail in our online recorded webinar.
Of course, nothing works every time. There will be false breakouts. However, on a
statistical basis, a violation of a Ross Hook occurring when price action is sideways,
consistently results in a low risk entry with a heightened probability for success. Since
the violation of a Ross Hook occurring in a sideways market is an acceptable trade,
then an entry based upon a Traders Trick entry ahead of the point of the Ross Hook
being violated offers an even better entry, which is why you will want to hear Joe Ross
explain it. His explanations go far beyond what you will find in his books.
ABOUT THE TRADERS TRICK (TTE)

The few examples of the Traders Trick Entry (TTE) included in this presentation are
unrefined, and are meant to excite your curiosity as to exactly what the TTE is, and
how and why it is used.
Over the years, the TTE has undergone many refinements based on the experience of
many traders in addition to the personal experience of Joe Ross.

© by Joe Ross
We are grateful for the feedback we have received about the TTE. The proper use and
understanding of the TTE has made the difference between winning and losing for
many hundreds of traders. To properly learn the TTE it is essential that you further your
education and make the effort to learn what TTE is all about. The material for the TTE
goes far beyond the examples shown for TLOC in this introduction.
What you see with the examples of the TTE in this document show that the TTE gives a
better entry into a trade then simply waiting for a breakout of a #2 point or a breakout
of the point of a Ross Hook. However, the refinements made to the TTE create even
better trade entries.
POINTS OF CLARIFICATION FOR 1-2-3 FORMATIONS
We have had a number of people ask about the trading of the 1-2-3 high or low
formation. They ask, “When do you buy and when do you sell?”
Although we prefer to use the Traders Trick Entry whenever possible, the illustrations
should be of help when not using the Traders Trick.

© by Joe Ross
THE BREAKOUT OF A 1-2-3 HIGH OR LOW
Let's illustrate what a 1-2-3 is:
Sell a breakout of the # 2 point of a 1-2-3 high
Sell a breakout of the # 2 point.
Buy a breakout of the #2 point.
Buy a breakout of the # 2 point of a 1-2-3 low
Note: The #3 point does not come down equal to or as low as the #1 point in an uptrend, or equal
to or as high as the #1 point in a down trend.
We set a mental or computer alert, or both, to warn us of an impending breakout of these key
points. We will not enter a trade if prices gap over our entry point. We will enter it only if the
market trades through our entry point.
1-2-3 Highs and Lows come only at market turning points that are in effect major or intermediate
high or lows. We look for 1-2-3 lows when a market seems to be making a bottom, or has reached
a 50% or greater retracement. We look for 1-2-3 highs when a market appears to be making a top,
or has reached a 50% or greater retracement.
Exact entry will always be at or prior to the actual breakout taking place.

© by Joe Ross
POINTS OF CLARIFICATION FOR ROSS HOOKS
We are asked the same question with regard to the Ross Hook as we are about 1-2-3
formations: “When do I buy, and when do I sell?” Our answer is essentially the same as for the
1-2-3 formation. Although we prefer entry via the Traders Trick, such entry is not always
available. When the Traders Trick entry is not available, enter on a breakout of the point of the
Ross Hook itself.
Buy on a breakout of the point of the Ross Hook. But

keep in mind this warning: When the point of a Ross
Hook is taken out, it very often is nothing more than
stop running, and the breakout will be a false one.
Sell on a breakout of the point of the Ross Hook.

© by Joe Ross
Some comments about the series of graphs that follow might clear up a few questions:
This is important! Prices make a double

top at the last Ross Hook shown, and
then retreat. Many professional traders
would go short as soon as they felt the
double top was in place.
Notice that we are able to connect a True

Trend line from the point of the lower
Ross Hook to the correction low that gave
us the #3 point, and then to the
correction low that created the double
top Ross hook.
That leaves us with a 1-2-3 low and a Ross Hook in the event of a breakout to the upside. It also
leaves us with a 1-2-3 high and a Ross hook in the event of a breakout to the downside. A
breakout of the double top (Rh) will set us up for any subsequent upside Ross Hooks if prices
take out the double resistance area and then later correct.
The double top Ross Hook represents a low

risk entry for a short position. However, in
this example we will wait for an entry at the
violation of the Ross Hook itself. A more
advanced trader might wish to go short as
prices move away from the double top. This
is a low risk trade because a stop can
temporarily be placed above the high.
Notice we are saying temporarily. The
double top could be a terrible place to have
a stop should the insiders engineer a move
up to run the stops they know are there.

© by Joe Ross
The Traders Trick Entry would enable us to enter by
going long earlier than waiting for the double top Ross
Hook to be taken out. The more conservative trade is
to use the Traders Trick entry, figuring that prices will
at least test the high as prices move up. The Traders
Trick Entry in this case is just above the third bar of
correction. All or part of the position can be put on at
the Traders Trick Entry point. It’s simply a matter of
choice. If you want to know what our choice is, it is to
place the entire position on at the Traders Trick Entry.
However, prices continue down and take out the

lower Ross Hook. We should have had a resting sell
stop below that Ross Hook as well. We can sell short
all or part of our position as the lower Ross Hook
itself is violated.

© by Joe Ross
We see that prices are plunging. However, we should
not be jumping in front of the market at each lower
bar, because by the time prices take out the Ross
Hook, the market will have already been moving down
for four consecutive bars. If you will recall the lessons
learned from our section in ELECTRONIC TRADING
‘TNT’ I on finding the trend while it is still in the birth
canal, you know that the market may be getting ready
to correct.
Note the intraday correction at the arrow on the right of

the chart. An important event has taken place. The
intraday correction makes it okay to jump in front of the
market. The fact that the market opened, traded above
the previous bar’s high, and then took out the previous
day’s low, signifies at least one more good day to be
short. If trading intraday, jump in front of the Ross Hook
created by the intraday correction.

© by Joe Ross
We now have an intraday correction followed by a
reversal bar. The market is talking! Note the gap open
beyond the previous bar’s low. Then notice the price
action for the remainder of the day. Professional
traders will go long on a gap open like that, some of
them as soon as possible after the open, and others
when prices trade through the open to the upside.
When you see a gap open like that in a strongly
trending market, take profits. If your guts are under
control, take profits and reverse. Most of the time, you
will be glad you did. In fact, many professionals, if they
think the market is beginning to congest, will double
up on a gap opening and trade twice as many
contracts against the trend as they would with the
trend.
The market was telling us to expect a correction.

Were you listening?
When prices are correcting and prices open in the

upper part of the previous bar’s range, and then
move above the previous bar’s high, chances are
you haven’t seen an end to the correction.

© by Joe Ross
This latest price bar places the chart
into a 5 bar consolidation area. We’ll
place a box around that area. This area
is considered to be congestion by
alternation and is described in my book,
"Trading the Ross Hook".
Although not shown, you can picture that a 3x3

moving average of the close, is running through
the middle of the 5 bar congestion.
The 3x3 moving average is a filter for Reverse

Ross Hooks. It is also a filter here for the same
reasons – we are in a defined congestion by
reason of alternation.

© by Joe Ross
Since the trade doesn’t pass our filter
because of a “gap opening beyond the low
of the Rh,” we must remove any order to
sell a breakout of the Rh. The gap opening
below the previous bar’s range has brought
in a double load of orders from the insiders.
Prices move up on a reversal day. Remember,

when the insiders feel that a market is
congesting or correcting, they will double
their orders on openings that gap beyond
the price range of the previous day. This
doubling can serve as a filter for our trades,
because we can expect the insiders to try to
fill the gap. Day traders can use this to trade
right along with the insiders who know to
expect this type of price action.

© by Joe Ross
Rh As prices gap past the Rh, and then correct, we can place a sell
order below the new Rh.
The following day, we get a gap opening to the upside. This

time it is above the high of the previous day. It, too, will bring a
double load of sell short orders. This is a correction day and so
we can connect some segment lines.
Rh
Rh
Prices hit our sell stop below the Rh. Our sell stop has been
placed one tick below the point of the Rh. We want a violation
of the Hook before we will accept entry.
There are many problems with getting filled on a gap opening

below our sell stop, the least of which is slippage. Therefore, if at
all possible, we do not enter orders until we see where the open
occurs. Brokers can be instructed in that manner if you have to
use one for the actual placement of your order. On the chart to
the left, prices opened exactly one tick below the Rh.

© by Joe Ross
The next price bar makes an unusual close. We must do all we can
to protect profits. There is apt to be further correction on the next
price bar.
Rh
Rh
We protect profits by moving our stop one tick above the high of
Rh any bar that closes very close to the high when we feel that prices
should be continuing to move down.
The correction comes intraday, creating an intraday hook situation. Day traders may have been
able to scalp a few ticks of profit here.
Rh
Rh
Day traders may have been able to profit by selling under

the low of the previous day. Any day trader at any time
should consider a breakout of the low of the previous day
a strong reason to sell short.
Rh
Rh
The correction by prices on the last bar shown gives us
another Rh.

© by Joe Ross
Rh
Rh
As prices correct, we try to sell a breakout

of the low of the correcting bar.
The following comments apply to the chart above and the one below. We may want to put on our
entire position but we have only two opportunities. It may be best to put on 2/3 of the position at
the higher of the two entry points, and only 1/3 at the hook, if we are given the choice. Once
prices start back down, we try for 2/3 immediately. If we still cannot get our position on, then we
will have to place the entire position on at the hook. You may recall in a similar situation we
looked at the 3x3 moving average of the close and considered it a filter for the trade because the
3x3 was running through a five bar consolidation. In this instance, the 3x3 moving average was
still displaying containment of the downtrend.
Rh
Rh
A trade at the low is missed because of the

gap opening. We then try to sell a breakout of
the next low, as well as the Rh.
Our position is filled at both entry points.

© by Joe Ross
Rh
Rh
Rh
The following comments apply to the chart above and the chart below: As we take profits out
of the market, we come to a point where we have accumulated sufficient profits that if we wish
to risk those profits, we can begin to keep our stop further away from the price action.
If we don’t want to take additional risk, then it’s best to trail a 50% stop as the market moves
down, and pull stops even tighter on reversal bars, or any indication that something is amiss.
Because of the reversal bar, we tighten stops.

Rh
Rh We don’t want a win to turn into a loss.
Rh Another intraday correction gives day traders

an opportunity to sell short.

© by Joe Ross
Rh
Rh
Rh
An outside bar fills those traders who went short.
Rh
Rh
Rh
All traders can jump in front of the market and get

filled as the low is taken out.
Rh
Rh
Rh
Prices break nicely to the downside.

© by Joe Ross
Rh
Rh
Rh
The downtrend is fully intact. If we are willing

to take more risk, we can allow our stop to
lag further back.
Rh
Rh
Rh
Here we see the value in keeping our

trailing stop a bit further away, once we
have established acceptable profits.

© by Joe Ross
Rh
Rh
Rh
In any case, we would place a sell stop

below the Rh and the next correction bar,
in effect opting for the Traders Trick.
Rh
Rh
Rh
We now have three possible selling

points. Whenever we get 3 bars of
correction, we move our lagging stop (if
we have one) to one tick above the high
of the third correction bar. This is
because, if we were to get more than
three correcting bars, we would have to
assume that the trend is at least
temporarily over, and prices may now
move higher, or at the very least move
into a congestion phase.

© by Joe Ross
Rh
Rh
Rh
The gap open misses our highest entry point.

Because it does, it would cause us to try to fill
2/3rds of our position on a breakout of the low
of the gap down bar.
Rh
Rh
Rh
Once again the entry point was missed on

the gap opening. We will try again for
entry on the next price bar.

© by Joe Ross
Rh
Rh
Rh
This bar brings a fill near the close.
Rh
Rh
Rh
At this point our entire position should

be in place.

© by Joe Ross
Rh
Rh
Rh
We do not need a sell order below the

Rh if our entire position is in place.
Note with regard to the last four charts: An adequate trailing stop would have kept us in the market
throughout the four days show on these charts. We would have been able to build a position by
adding contracts.
But keep in mind that adding contracts also adds all new risk. Furthermore, the risk which is
incurred may be greater in nature than the risk originally accepted. Why? Because each time we add
to our position, we are closer in time to the end of the move being made.
The method of trade management that we have been showing you in this entire series of charts is
here is to demonstrate to you an alternative method of trade management. It is up to the trader to
decide how to manage his/her own positions. In our minds there are two basic approaches, both of
which may be acceptable to some.
The first is that of putting on the entire position upon the initial entry and then liquidating portions
of that position to cover costs, take a small profit, and finally to ride the trade as far as it will go with
what remains of the position after partial liquidation.
The converse of this method is to build the position by entering a portion of it to test the waters. If
the initial portion becomes profitable, you then add to the position by adding contracts in stages
until you have put on the entire position.
Much of any acceptability depends upon your personal comfort level in handling risk, and your
financial capacity for handling risk.

© by Joe Ross
We’ll look at two more charts now. In actuality, the market continued downward for quite some
time after the last chart below.
Rh Rh
Rh Here we see a reversal day. By now you should know

that it usually means some sort of correction is due.
Rh
Sure enough, prices correct. We would start by trying
to sell a breakout of the correction low. We would also
place a sell stop below the Rh for part of our position.
Rh
Rh
Rh
Rh Remember, it is up to you to decide how much of your

position you want to place at any given level. It is a matter
of comfort and style. Where do you feel best about placing
your entry orders?

© by Joe Ross
Congratulations!
You have just completed your first of two free trading lesson
EBooks that were created by Trading Educators - Joe Ross which
launched Joe’s successful trading career in all markets.
Traders Trick Entry (TTE)
Traders Trick Entry (TTE) will follow next week via email.
Our main goal is to help you reach YOUR goals of becoming a successful trader, and to
show you that consistent profits are attainable! It’s important to remember, while learning
the “trade” of trading that you must have a general understanding and the proper
resources before even placing trades. Take this seriously, and treat it like it’s your own
business. If you stumble across products promoting “Get Rich Quick” or “The Holy Grail”,
you’ll only learn what false-hopes products are all about. We’ve heard this story from many
of our traders, so don’t fall into that trap. Learning how to trade takes time and patience.
We are here to help you learn with our many resources that we offer, and the experience
of our master traders that can properly guide you.
If you would like a deeper, further explanation of the

LAW OF CHARTS (TLOC), we suggest:
THE LAW OF CHARTS IN-DEPTH RECORDED WEBINAR ©

Use “moretloc” coupon code to receive 20% off.

© by Joe Ross
Disclaimer
THE RISK OF LOSS IN TRADING COMMODITIES CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY
CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. THE HIGH
DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY TRADING CAN WORK AGAINST YOU AS
WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. PAST RESULTS ARE
NOT INDICATIVE OF FUTURE RESULTS. HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT
LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY
ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE
FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL
RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF
HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF
HINDSIGHT. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE
IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE
PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL
TRADING RESULTS.
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The Law of Charts - Trading Educator

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Welcome to the Law of Charts.

This Ebook, created by Joe Ross, introduces you

The Law of Charts (TLOC)

A typical 1-2-3 high is formed at the end of an up-trending market.

The Law of Charts (TLOC)

The Law of Charts (TLOC)

The Law of Charts (TLOC)

A typical 1-2-3 low is formed at the end of a down-trending

The Law of Charts (TLOC)

The Law of Charts (TLOC)

The Law of Charts (TLOC)

The Law of Charts (TLOC)

A Ross Hook is created by:

1. The first correction following the breakout of a 1-2-3 high or low.

The Law of Charts (TLOC)

The Law of Charts (TLOC)

The Law of Charts (TLOC)

1. Ledges - consisting of no more than 10 price bars

The Law of Charts (TLOC)

The Law of Charts (TLOC)

The Law of Charts (TLOC)

ABOUT THE TRADERS TRICK (TTE)

The Law of Charts (TLOC)

POINTS OF CLARIFICATION FOR 1-2-3 FORMATIONS

The Law of Charts (TLOC)

Let's illustrate what a 1-2-3 is:

Sell a breakout of the # 2 point of a 1-2-3 high

Sell a breakout of the # 2 point.

Buy a breakout of the #2 point.

Buy a breakout of the # 2 point of a 1-2-3 low

The Law of Charts (TLOC)

Buy on a breakout of the point of the Ross Hook. But

Sell on a breakout of the point of the Ross Hook.

The Law of Charts (TLOC)

This is important! Prices make a double

Notice that we are able to connect a True

The double top Ross Hook represents a low

The Law of Charts (TLOC)

However, prices continue down and take out the

The Law of Charts (TLOC)

Note the intraday correction at the arrow on the right of

The Law of Charts (TLOC)

The market was telling us to expect a correction.

When prices are correcting and prices open in the

The Law of Charts (TLOC)

Although not shown, you can picture that a 3x3

The 3x3 moving average is a filter for Reverse

The Law of Charts (TLOC)

Prices move up on a reversal day. Remember,

The Law of Charts (TLOC)

The following day, we get a gap opening to the upside. This

There are many problems with getting filled on a gap opening

The Law of Charts (TLOC)

Day traders may have been able to profit by selling under

The Law of Charts (TLOC)

As prices correct, we try to sell a breakout

A trade at the low is missed because of the

Our position is filled at both entry points.

The Law of Charts (TLOC)

Because of the reversal bar, we tighten stops.