Don't Chase Butterflies When You Invest 1st Edition

By L.
J Tortosa
Don’t Chase Butterflies

when you Invest
Market sentiment approach is a simple yet effective way of investing and trading
in new technologies such as Cryptocurrencies, Stocks, Foreign Exchange, and
Gold markets in a slightly different way.
1st Edition (English)

Disclaimer
Do your Own Research:
With every financial investment comes the risks associated. In this matter, the content in this
book is intended to be used for educational and informational purposes only. It’s very
important you do your own research and analysis before making any investment.
No investment Advice:
No content in this book constitutes or should be taken as a recommendation to enter in any

securities or to engage in any investment strategy presented in the book.
Past performance:
The performance and chart examples are historical; past performance is not a reliable
indicator for future results and investor may not recover the full amount invested.
Individual Opinion:
The information on this book is based on my personal opinion and experience by any means
should be considered as professional financial advice. The opinions here do not represent the
position of any agency, organization, company or employer.
Errors & Omissions:
The author assumes no responsibility or liability for any errors or omissions in the content of
this book. The information contained in this book is provided with no guarantees of
completeness, accuracy, usefulness or timeliness in any case you’re free to investigate any
information here for its accuracy.
Copyright © 2020 by L J Tortosa All Rights Reserved.

Content
Prologue ..............................................................................4
Chapter One - A Brief Review ............................................8
Chapter Two - Market Sentiment ......................................16
Chapter Three - Elliot Wave Principle ..............................20
Chapter Four - Fibonacci Retracement and Extensions ....25
Chapter Five - Candlestick Patterns ..................................32
Chapter Six - (Crucial) Capital Management ...................41
Chapter Seven - Using them together ...............................52
Chapter Eight -Conclusion................................................63
3
Prologue
Common wisdom inside Wall Street or Exchanges around the world

keep everything complicated so we can keep the commissions coming. The vast
majority of supposed researches, news, and assumed gurus out there assert that
beating the markets is an impossible task for common people, indeed is very hard
but not impossible. In fact, many people try but most fail because they are not
well informed, have poor capital management, and gamble with the markets.
This kind of observations have been made for quite some time leaving the
new investor; or even the ones that fail in the first time, frustrated and
surrendering to passive investment vehicles or very expensive information
trading services. Indeed, this is the place where they want you to be because there
is where the commissions and the profits through selling services are made. You
name it, it can be the ultimate crypto signal or something else but is all the same
just buy my service and you will succeed and be rich.
For this reason, they will convince you that you need to purchase their
services and will be against this affirmation even say it’s heresy and I know just
by mentioning it I’m winning a lot of enemies; let's face it we are talking about a
multibillion-dollar business that relies on your consumption; but on the contrary
with examples and market history; I think I can make you my friend reader at
least be open to the idea of investing differently. I know by now that if you are
familiar or experienced in the markets you will already have received millions of
newsletters, holly market information, subscriptions that will give you the edge in
the markets and if you are a beginner wanting to start trading well you wouldn’t
even know where to start with the thousand emails, newsletters and service
offers, well this confused point is where they need you to be , because is then,
out of despair you will spend your hard earned savings in services you probably
don’t need, I’m expanding in this topic because is important to start from there ,
I hope you understand the point I’m trying to get.
4
Prologue
Well, that’s far from the truth my fellow reader everyone can make it in the
streets you just need the right tools, dedication, capital management, practice, and
more practice. In this book, I will try to make you see the market in a different
way and use this knowledge to trade the emerging technologies out there such as
cryptocurrencies, the old but with a modern approach for foreign exchange
markets, along with stocks, and of course, the good old gold market; all these
assets are moved by sentiment.
In a time when every market move is attributed to an event to justify its

action (plain and simple marketing), but with actual movements and analysis I
will try to explain that there is no such correlation; therefore, it doesn’t matter
how many events around the world or what the mainstream media and news say;
indeed, the market will do what he want’s because the market is moved by
sentiment and this can be seen in every type of asset in the long run.
Markets cannot be caged in such a simple way because if it was; we all be

millionaires by now, just by listening to analysts out there, the truth is not that
simple and markets cannot be controlled or rigged they will eventually break free.
That’s why we see so many collapses in many assets taking down the most
uninformed investors out there and these uninformed investors are exactly the
ones that base their investing strategies just by what market researchers say. At
this point, some will be confused because we have been taught just to turn on the
television, go to the market news on the internet, listen to podcasts or YouTube
gurus and invest based on that.
The good news is you don’t need any of them to make it in the tough streets
of investing, you don’t need cheap or expensive subscription; it doesn’t matter
how much they tell you that you won’t survive without this kind of services the
truth is the only one between success and you is only you; again just make a
plan, educate yourself and practice.
5
Prologue
In many years of research and experience I came with the conclusion that
market sentiment is the only way to invest in the long run , so is what I call my
holy grail of investing, so in this book, we will go through market sentiment
analysis, let’s remember markets were created by humans with all of our flaws
and greatness, so we must assume that markets are moved by human sentiment.
I hope you find this book interesting and useful in your investing and
learning skills; that’s how I imagine the use of this book; the future reader might
look back on this book and find familiar patterns in everyday charts and in almost
all markets.
Example 1.1
This is the chart right before the market crash of 2008 prior to the Great
Recession, further down the road in this chart pattern we will insert all of our
market sentiment information and recognize what the market was telling us in
this precise moment and make decisions accordingly.
So we would see that with the right set of tools and true and transparent
capital management, informed investors could have saved money in the crash and
even make some money in the short side of the market ( as a matter of fact some
weirdos did big time ).
6
Prologue
I wrote this book myself without wasting many hours of editing with a
professional writer, I rather use that time with family and friends, for this maybe
is not written in a perfect manner but you know what? I think is better this way
because we are traders/investors we focus on making money on the market not in
reading a perfect novel.
- “Let’s keep our trading simple and clean and the results will come”
- “If you can’t explain it simply, you don’t understand it well enough”
Albert Einstein
7
Chapter One - A Brief Review
A summary of the tradable asset that fits in our trading strategy I will
describe them simply and quickly to keep the focus on what we want market
sentiment analysis lets remember what Einstein said to keep it “simple” so let’s
keep it simple and brief here.
This chapter may be tedious for the most experienced investors but I think
is important to give a brief review of the tradable assets for beginners or less-
experienced traders. Thanks for your understanding let’s get down to it.
Lets Start :
600 BC
For quite some time it’s been used as the ultimate monetary system and
still is. With an asset universe value at more than 3.1 Trillion US dollars is quite a
liquid market. Some might say it is the only real money out there because it is
outside of the fiat currencies1 system its price is not controlled by any
government and cannot be devalued with the snap of a finger. Starting with the
assumption that the market is moved by sentiment and psychology the gold
market is a perfect example.
1 Fiat currency is legal tender whose value is backed by the government that issued it.
A key market mover for gold and other assets is sentiment; for example, in
the market news, specialized financial services and all over Wall Street affirmed
that gold and silver markets crashed because new technologies specifically
Bitcoin made newer generations to lose appeal for gold to this new technologies.
Yet if we do simple math all cryptocurrencies combined market cap is roughly
200 billions US dollars nowadays and with a Gold/Silver market cap at 3,1
trillion US dollars the equation goes like this:
200,000,000,000 / 3,100,000,000,000 = 0.0645 = 6.45 %
Okay, I know its a lot of zeros but as you can see all cryptocurrencies market
cap is just 6.45 % of all the gold/silver market so its impossible that cryptos
made the gold market to fall it is just a tiny market compared to gold. And this is
assuming that all cryptos were bought with money destined to the gold market
which brings us to a more realistic number like 1% of the gold market.
So what made the gold market to fall 200 $ from the last top, well I’m
being repetitive here it was market sentiment and this is reflected in the
aggressive price movement, this kind of movements are seen in extreme
conditions that we will review in our methodology, therefore when you see a 200
$ move and you are not in or out of a trade probably it is already too late and we
will try to foresee this situation preventing this from happening.
As I’m trying to explain here there will always be someone trying to have a
satisfying explanation for the decline or rise of a market and cryptos sounded like
a great story that sold good enough at the time.
Continuing with history what is known as the Bretton Woods International

Money Agreement after the Second World War; many countries fixed their
exchange rates to the United States Dollar; consequently, Central Banks around
the world could exchange these dollars for Ounces of gold at a fixed international
price. By doing that all currencies had a fixed value in gold terms. Giving
stability to the markets and asseverating gold as a store of value as it always has
been.
9
In my opinion, good things sometimes come to an end without any reason

and this agreement ended in 1971 when President Richard Nixon of The United
States of America ended the convertibility of US Dollars to gold. As a result of
ending this agreement and just for an informational purpose not for criticizing
this political desition because we are not into politics, gold went from 35 $ by
that time and now is 1300 $ a big depreciation in US dollar terms.
Gold being around for so long is traded in many ways and forms such as
physical, Exchange-Traded Funds ( ETF’s), gold miners stocks and gold options
and futures.
- Physical Bullion is in the form of coins and bars is a little impractical

because of the size for transport or the cost of safe storage; but in an eventual real
financial stress to the markets or the collapse of the traditional fiat currencies and
governments; it comes in handy to have an insurance that's been around for so
long and will always be valuable and money, I’m not assuming that this will
happen any time soon but everything is possible.
- Exchange-Traded Funds ( ETF’s) is an investment fund traded on stock

exchanges similar to stocks. Exchange-Traded Fund holds assets such as stocks,
commodities, or bonds. The most popular gold ETF’s by market size are SPDR
Gold Shares ticker ( GLD ), iShares Gold Trust ( IAU), ETFS Physical Swiss
Gold (SGOL) not in order, for information of this funds go directly to there site,
Big NOTE this is not a recommendation to invest, buy or sell these assets is just
for informational and study purpose, remember investing in any asset comes with
a risk so do your due diligence.
- Gold Miners Stocks as the name says is investing directly in the gold
companies that cover mining, production, and exploration. Usually, these
companies trade on stock exchanges around the world. Also, these are companies
just like any other traded in bourses they have debt, management and risks of
production, so you’re not investing directly into gold we have to keep this in
mind when investing in miners stocks because they don’t have to move in the
same direction as gold.
10
- Gold Options and Futures are for the more experienced investor, options
allow you to speculate in the up’s and down’s in gold prices buying puts or calls.
For more information on trading options, you can find a course dedicated to these
and there are many texts out there for this.
As you can see there are many instruments to trade gold but we will focus
only on the price per ounce exchange XAU/USD because this is the true market
sentiment of the gold market the other forms of investing in gold are speculative
or not exactly represent the sentiment the market has toward gold alone.
Example 1.2
This graph shows a Two Hundred US Dollars declined of the gold market in a
Daily Chart represented in XAU/USD price or price per ounce. Introducing our
market sentiment strategy in the future and seeing this same chart you will
understand what the market was pointing out in sentiment terms before the
decline. I know is not clear at this moment or for some it is, but we will get there.
11
Remember every investment comes with a risk not always the market will
work or go the way you believe or planned, bear in mind the market is free and as
a free animal you need to be careful, plan your strategy in case the market goes
the other way; the most important advice I received “Capital Management will
keep you alive in the streets”.
2009 Cryptocurrencies
The boom the bust there are many critics and fans of this new market;
we are not going to go into deep if its the next big thing or not because it is not
our intention; we are here to trade this asset like any other asset that applies to
our market sentiment investing style.
This market has gone through a rollercoaster in this last year topping
19,500 $ and currently at 4,500 $, so what happened how is this possible if some
crypto gurus or even more, the media affirmed its the next big thing and assured
you Bitcoin is going to 50,000 $, on the contrary, they are crypto critics claiming
is a fake market, a scam and is going to Zero $ so who is right who is wrong, the
real answer is none of them.
The market is the only one that’s right and at the moment you understand
and embrace this the more you will be profitable and successful as an investor.
Bitcoin; as any of the tradable assets describe in this book; above all, the single
most important piece of information you need to know is the sentiment and the
price action that this provides.
Particularly in this market, there is a lot of miss-information and many

assumptions that novice investors will listen to and believe because is so
convincing and so many profits promised that it has to be true.
12
For example, there is the hypothetical possibility that if the big fishes out
there pound a little money into this market it will explode and so on and on, this
is a great example of how the media can create an illusion and the big question is
would you put your hard earn money based in this assumptions rather than
instruct yourself, plan a strategy and if the market runs to 50,000 $ ride the trend
or if it goes to Zero $ just plan an exit strategy this my friend is called Capital
Management without it you won’t survive in any market in the world.
Cryptos are traded in cryptocurrencies exchanges much like a traditional

stock exchange if you require more information about how or where to trade
there’s plenty of resources out there we just focus here on trading.
Example 1.3
Here is a chart of BTCUSD or Bitcoin in US dollars, depending on

where you bought it is a beautiful or very ugly chart. If you traded this asset
based on the news, supposed fundamentals or gurus in December 2017, my
friend, I’m sorry if you didn’t have good capital management or exit
strategy; yet the bright side is you decided to instruct yourself so the next
time you will be prepared for any scenario.
13
1995 Foreign Exchange Currency ( FOREX )
Open to small investors in 1995 is the biggest market in volume in the world
as its names says is the exchange of fiat currencies around the world. It's open 24
hours so it can be pretty addictive to some, as the other asset this is a market
guided by sentiment and price action and it applies to our market sentiment
analysis system the big difference is you have a whole bunch of pairs to trade as
there is a huge number of currencies out there.
This market can be very risky due to the fact that you can leverage yourself
in some cases up to 200: 1, this is the first mistake small investors do extra
leverage themselves hunting for huge profits but if you’re wrong you will wipe
your account and again your hard earned money will fly away, so its simple
“capital management” will make a big difference between losing and winning.
Forex is a market that in the end, the sum of winnings and losses is zero, so
by educating and managing yourself you will be on the earnings side longer than
in the losing side and there is where the profits are; being wrong you cut losses
being right you let it fly; remember losers pay winners it’s easy.
Currencies are traded in the international Over-the-Counter Market ( OTC) 2

if you don’t know how the market works and need more information there’s
plenty of courses out there just choose one and learn how the market works, how
orders are placed etcetera because this is not the core of this book.
14
2Over-the-Counter Market (OTC) Trading is done directly between two parties without the
supervision of an exchange.
1602 First Shares Issued
The first company to issue shares was Dutch East India Company on the
Amsterdam Stock Exchange. From that time to the present we have come a long
way; bull and bear markets have come and gone many times over.
Many families around the world had suffered frustrations or even worst in
the Bear Markets and, of course in the Bull Markets experienced great profits and
happiness if you will; but we don’t want to let this into random luck we have to
accept that sentiment together with price action are the ones that rule the markets
and try to understand what the market is telling us so we will have a plan in any
situation and this is what we are trying to embrace in this book remember
Example 1.1 in the prologue.
In summary, there are many assets you can trade under our trading market
sentiment style you just need to choose which one fits your trading style, time
frame, and risk tolerance but let me assure you that price action and sentiment is
what is all about. We’re done with this brief review of assets if you need more
info about each asset and where they are traded please feel free there’s plenty of
resources and courses for that. I don’t want to recommend any because I’m not
selling you guys any service.
This book is for educational purposes any information here is not intended to
recommend buy or sell any asset mentioned in this book; I don’t have a business
relationship with any of them or not seeking too. Any investment comes with an
associated risk that you should understand and accept; there is no holy grail in
financial markets.
15
Chapter Two - Market Sentiment
Since the prologue we have been talking about market sentiment and the
importance it has, but what this means. First, we have to get out of our heads the
idea that fundamental, fake news, real news, super news it doesn’t matter how
you want to call them; they DON’T drive the market sentiment does.
Let’s see a few examples where the fundamental news and analysis got
everything wrong in the last few years:
2015
Gold Markets from the peak in 2011 had fallen almost 50 % from 1,900 $
an ounce to 1,046 $ an ounce, by this time the big tabloids, the most expert
analysts out there , the best financial information subscriptions all agreed that
gold was headed south of 1,000 $ an ounce and gave you trade recommendations
to sell all gold holdings, gold stocks and, gold ETF’s.
Well the gold market is driven by sentiment and made a substantial low by
the end of 2015 and then made an spectacular rebound of 300 $ an ounce for a
30% profit and gold stocks as a compound expressed in the Gold Miners ETF
( GDX ) made a 150 % profit in the same time frame, leaving the investor that
relies in news rather than market sentiment and price action with the pockets
empty.
2016
Like you probably heard everywhere before the elections, on the news,
polls, etc., H. Clinton was 90 % likely to win the Presidency. Fast forward we all
know by now what happened and we won’t go further on this subject because our
focus is not political or has any relation with political parties is just to explain
what happened in the markets next.
16
The common belief at that time was that if H. Clinton won, the market will
rally or continue its course on the contrary if D. Trump won all hell will break
loose and the markets all over the world could fall by 50 % much like the Great
Recession. But my friend the market did the opposite of what analysts around the
world told you D. Trump won the Presidency and markets rallied 60 % in the
next few years.
So what happened here? again investors sentiment and expectations are the
answer, this is the real market driver, not the million explanations you listen
every day about every single market move; usually, with stories like indexes
around the world fall because of this or indexes rise because of that. This is why,
once again the news addicted investor is left with the pockets empty.
2017
Market cycles repeat throughout history from one asset to another, so we

came to the newest of all cryptocurrencies. On Nov/Dec 2017 everyone was
jumping on one foot on how they will become instant millionaires by next year;
with the big promise of the media and analysts that for example Bitcoin was
headed to 50,000 $ by June 2018.
So the naive media investor obviating the market sentiment and reasons went
and bought cryptos with all the resources they could find like using credit cards
when it was possible, or a second mortgage on their house, lines of credit with
their financial institutions and hard earn money.
Once again the market did exactly the opposite of the so could gurus and went
crashing down leaving many hard-working people with debt in one hand and a
depreciating asset in the other. So what happened here repeatedly is market
sentiment, in a moment of euphoria and media frenzy, it ballooned the price to
all-time high and after an extremely state of optimism in the market psychology
shifted to extreme pessimism and came crashing down. It’s just another example
of media belief kind of trading and crowd psychology.
17
Example 1.4
2019-2020
This Chart alone doesn’t say much but is one of the most important of recent
times in the financial markets, is President Donald Trump the real architect of
strongest bull market we have seen in history or is it something else? Is the new
Coronavirus disease (COVID-19) Pandemic the real responsible of the recent
correction to Bear market territory.
Some of this questions can be answer structuring the charts in the correct
approach. As the examples above in December 2019 and start of 2020 we where
getting new high’s almost weekly, and off course no one in the economic media
dared to write something concrete about a possible correction. Instead they sold
what people wanted to hear and that was when we will get to next milestone in
the Dow Jones Industrial Average. But here we are a few month later in a Bear
Market Territory by definition.
18
Now that we have seen how an investing strategy based on what you see
and hear in the mainstream media or believe blindly in analysts recommendations
is wrong and will almost all the time have you on the wrong side of the market.
Let’s face it; they need to sell something every single day so every day you will
have a new reason for why the market moved or will move in the future.
Leaving all that behind let us approach the market in the right way. All
financial market are human-made so starting from that principle we must assume
that the markets are moved by human psychology, as described by Ralph Nelson
Elliott along time ago the market moves in waves of optimism and pessimism, so
in our strategy we will incorporate wave counting as described in the Elliot Wave
Principle as a key indicator.
Next to Elliot Wave Principle we will use Fibonacci Retracement

identified by mathematician Leonardo Fibonacci in the 13th century as Fibonacci
Numbers , they are found everywhere in nature including in ourselves, let’s put it
this way our main source code is DNA molecule, and DNA molecule is
composed of two helical chains that measure 34 angstroms long by 21 angstroms
wide. 34 and 21, are Fibonacci numbers, and their ratio is 1.618 known as the
Golden Ratio.
And last but not least we will use the Japanese Candlestick Patterns, the
earliest technical analysis dates back to the 18th century with Japanese Munehisa
Homma credited as the first person using candlestick charting to track rise prices
back then. In modern financial charting, we see candlestick patterns in all time
frames and constitute a basic technical indicator for many investors.
These are the main components of our investing-trading theory and with
detailed examples, and illustrations across many assets, we will understand the
market differently. The mix of these signals gives you clues what the market is
thinking and feeling in any moment, nevertheless the markets are not fixed and
assured so there is no holy grail out there but yes there is probabilities and capital
management and that is what we are looking for the best odds of making money.
19
Chapter Three - Elliot Wave Principle
Let’s start with the first component of our market sentiment analysis the Elliot
Wave Principle. Mr. Elliot theory of market behavior as exposed in his books The
Wave Principle in 1938 and more extensively in Nature's Laws: The Secret of the
Universe in 1946 both were written a long time ago, so for many novices,
beginner or millennials investors this theory is practically unheard or even
discarded as its not in every day mainstream media.
Yet, that’s miles away from the truth, the fact is that Mr. Elliot principle of
wave counting is nowadays more effective than ever before because that
information is so fast and so much more extensive it reaches everywhere in a
matter of seconds, making the reaction of human behavior more extreme. For
example the fear of being left behind in 2017 in the great cryptocurrencies year,
the greed of a strong bull market in stocks, the pessimism felt by gold investors
when gold was near 1000 $; and we could go on and on with examples like this,
but we will focus on the methodology in a simple yet effective manner with great
examples through history that will help you understand this excellent tool and a
key component of our market sentiment study.
Mr. Elliot theory described how markets are moved by human psychology in
specific patterns moving in waves of pessimism and optimism. The first part of
his approach is characterized by five waves count, which is theorized as the
sentiment or feeling investors have within a primary trend and three waves as
counter trend usually with the nomenclature A, B, C. Once the five waves are
completed in the direction of the primary trend ; for example if it's going north it
suggests we are in the final stages of extreme optimism sentiment in the market ;
this hints and give’s us a high probability that the sentiment of investors is about
to change in the opposite direction.
Extreme optimism and pessimism are part of human behavior in the market,
which leads us with the collective mass of investors-traders on one side of the
market and at that moment is when investor’s start rethinking positions and we
may see the start of the counter-trend.
20
Returning to the primary point, we have 5 waves and 3 counter waves lets
see how we can graph them correctly, again, the first 5 waves move in the
direction of the trend with the waves 1, 3 and 5 tracking the trend and waves 2
and 4 are counter trends to the primary direction and are acting like small
overbought pauses for then to resume the next wave stronger than the next.
Let's review the basic principles of the Elliot Wave methodology:
1- We have to identify the trend and once we've done that we will map the first
wave.
2- Then we have wave number two, this wave cannot retrace to the start of wave
one if this was the case the count is invalidated, and in the scenario that we where
inside a trade we have to use our capital management tools and be prepared to act
accordingly for exits. Never try to force the market or trade we are looking for
the best probabilities, not gambling.
3- Wave number three in the structure must be stronger than wave number one in
the direction of the trend, this happens because more investors are getting
optimist on the asset.
4- The same as wave number two, this wave cannot retrace to the start of wave
number three.
5- The fifth and last wave in norm is the strongest and is where the greatest
profits are made, in this wave an extreme optimism have struck investors
regarding the asset catapulting the price to its final stages of optimism.
6- Waves must be correct in structure this means that you have a big picture and
you can place your wave numbers but the inner moves must be in wave structure
too.
21
This is just a summarized explanation of how Elliot Wave Theory works.

Above all, if you are not familiar to Elliot Wave Theory and how to graph it
correctly you must first invest time in learning this, there are millions of books
out there for you study and analysis, we will not extend in this matter because is
not part of our book to describe how each indicator work, but please make sure
you learn and review this extremely efficient theory in depth. In my opinion, is
great if you can find directly Mr. Elliot’s books and study them.
Starting from the above explanation first, we need to identify the primary
trend and then in which wave we are within this trend, in this way we can invest
and trade accordingly with the highest probabilities on our side. However, as
explained before markets are not rigged nor assured so there’s always the
probability of being wrong but with capital risk management and combined
market sentiment indicators, we will minimize the probabilities of being wrong.
Example 1.5
22
The above example is a daily chart of Apple Stock in 2018 we can count five
waves and what comes next is the counter-trend beginning or a pause from the
actual trend.
As we can observe we can explain this chart in the theory of waves,

however, in reality, we're discovering clues on how the sentiment toward this
asset is, and the waves are pretty good in ascertaining the stage in which the
trend stands.
Example 1.6
The above chart is the continuation of Example 1.4, how this chart advances
in 2018 is very interesting and explains clearly what market sentiment extremes
can do to any given asset. The extreme optimism in Apple Stock in the market
transformed into a brutal counter-trend that we can see in waves A, B losing more
than 25% from its peak in 2018.
Concluding in the fifth wave when most market participants were extremely
bullish about this stock as well as the mainstream media was; in this final push,
there are so many bullish investors inside the trade that the big question is. Who
is left to buy at these levels? and this is when the counter trade may begin.
23
One more time please don’t listen and follow blindly what you see in everyday
media or gurus tell, educate yourself and analyze the market and use your capital
management tools.
Another great example is Bitcoin, this may sound familiar looks like the
extreme optimism hit Bitcoin in December 2017 together investors and media
where so bullish it was impossible something could go wrong but suddenly it all
came crashing down and started a brutal counter-trend in 2018.
We will graph this in the examples chapter in combination with all the market
sentiment indicators that we will study to see if Elliot Waves Principle had some
information on how the market sentiment was at the time and, we would observe
and detect if we could have predicted the crash or given us clues that a
probability of a correction was imminent.
Analyzing and understanding this kind of situation and trading it honestly

without listening to all the noise around in the news or just trading based on the
many forecast you come around; which are almost entirely wrong or they are
right until they are not (remember they have to sell or have information every day
even if there’s none), you can make money and manage your capital more
securely and constantly.
This is the first component of our market sentiment analysis, it’s first
appointed because it's the most important of all in determining the feeling of the
market, again please before using Elliot Waves Principle instruct yourself on how
it works.
24
Chapter Four - Fibonacci Retracement and Extensions
The next piece of our puzzle is the Fibonacci Retracement Numbers as we

said in Chapter Two Fibonacci Numbers are backtracked to 13th Century and are
still used today in trading so this must mean something, what this means is their
efficiency in discovering the duration of any given trend or the retracement areas
based on very high probabilities where the human masses sentiment can get
well-balanced or extreme suggesting that something is about to change the most
common and more effective is known as the Golden Ratio of 1.618 %.
These numbers are explained in first hand as a Fibonacci sequence, which is

based on the Golden Ratio. 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, as you
can see each higher number is the sum of the prior two numbers, and the ratio of
any two consecutive numbers approximates 1.618 or its inverse 0.618 which is
known as the Golden Ratio.
The Golden Ratio is the most reliable and more commonly Fibonacci
retracement /extension number that you will encounter in your day to day trading
but is not the only one; it will be boring if it was the only right; the next numbers
are, 0.236 % or 1.236 %, 0.382 % or 1.382 %, 0.50 % or 1.50 %, 0.786 % or
1.786 % and 1, they are not written in order of importance. These are well-
defined points where we have huge probabilities for a retracement of the
preceding trend or the extension of the preceding trend.
I know is hard to believe or maybe a little confusing that something so old

can still be relevant nowadays but the same as gold they are still important and
useful.
Continuing we can start forming our market sentiment indicator, on one

hand we have Elliot Waves Counting (which by the way if you didn’t notice it
moves in a Fibonacci sequence five waves forward and three counter waves) and
in the other, we have Fibonacci Retracement and Extensions numbers. Let’s see
in a couple of examples how useful together they can be and why.
25
Example 1.7
The above example is Apple Inc. daily candlesticks graph of 2018 it’s clearly
in a rising bullish trend and the Elliot Wave Counting fits perfectly, we can
observe when the fifth wave is completing that the market is getting extremely
overbought and is warning a probable counter-trend and that is exactly what
happened.
In the next examples, we will identify the retracement areas and extension
areas that if we have applied our market sentiment study we could have profited
extremely well, moreover, we wouldn’t have listened to the market analysis
saying that Apple was sure to hit 250 $ by year-end and surely we would have
been trapped by now in the stock losing new opportunities elsewhere to profit
and progress.
Now let’s insert in every wave the Fibonacci retracements or extensions to see
if we could have predicted with accuracy and probability any retracement or
extension.
26
Example 1.8
Trend Wave No.1 and Counter Trend Wave No. 2
Following the preceding trend, we could have identified the counter-trend or

new trend forming in the first wave in February 2018, we observe how the first
wave completes and the second countertrend wave begins. At this moment we
draw our Fibonacci Retracement numbers looking for possible retracement areas,
being patient and trusting our system we see how it unfolds the second wave
making a perfectly smooth retracement in the 0.618 % area or the Golden Ratio.
27
Example 1.9
Trend Wave No.3
Starting from the First wave and using the retracement of wave 2 as support
the Fibonacci Extension is drawn as it follows giving you upside target areas in
this case the third wave rallied to the Fibonacci Number 1 and started a counter
wave No. 4.
28
Example 2.0
Counter Trend Wave No. 4
From the support of the second wave through the rally of the third wave
we have have the retracement levels, in this case, it made a small counter retrace
to the 0.382% area and started what it is the final and strongest wave of the trend.
29
Example 2.1
Trend Wave No.5
As mentioned before the fifth wave is what is all about, is the strongest wave
of the trend and is an area where everyone how wanted to be bullish or bearish
already are, is where the masses are coming together and it is possible the trend
is exhausting giving path to the A, B, C correction. In this case, it rallied
perfectly again to the 1.618% area completing wave five suggesting the trend is
overbought and what comes next is the harsh A, B, C correction breaking down
support areas aggressively, at this point and with good capital management that
later we will review you should already be out of the trade. In this area is where
the analysts out there where super bullish making recommendations to investors
and giving price targets to Apple Inc. of 250 $ a share. I’m sure looking at what
came next you are glad to have an indicator that puts you in the right direction
without listening to the buzz out there just listening to plain simple market
sentiment.
30
Example 2.2
This is how the complete picture of 2018 for Apple stocks looks like in a daily
candlestick chart using our market sentiment areas. At first glance, it looks
complicated but with daily practice, in a while, it will all become natural.
Remember what Einstein said let’s keep it simple, so its easier to break it in
smaller parts, first identified the trend if it’s rising or falling then find in what
wave you are, next depending on what wave start drawing possible retracement
or expansion areas, like this, you will have great probabilities of being in the right
side of the market.
We always have to account that the market is not perfect and theories will not
consistently work every time, that’s why we must be aware when a trade goes the
other way and exit based on our honest capital management.
31
Chapter Five - Candlestick Patterns
So we are getting to the last part of the puzzle of our market sentiment
indicator, well the candlestick patterns are not exactly a market sentiment
indicators but they can give us possible reversal, tops or bottoms.
In this case, we will use candlestick patterns only for possible exit points
once we are already in the trade. We are going to use it this way only because we
are not exactly technical traders or 100 % speculative, we work with
probabilities, so for the experienced traders who are already familiar with
candlestick patterns and trading them, is great but we are using it only for exiting
the actual trade so is not intended for entries.
Candlestick patterns are so many that we cannot count them with the
fingers in our hands, so I selected the ones that in my research give the most
reliable and consistent signals over time predicting possible reversals.
The first thing we need to know is what are Japanese candlesticks, I’m
sure almost everyone who starts getting interested in trading the first material
they find is candlesticks, is simple they measure the variation of price in a
predetermined timeframe. So here is an example of candlesticks and what they
are telling us.
Example 2.3
Decision Candles
32
Example 2.4
Indecision Candles
Decision candles are candles that can be expressed as Bull going up ( Full
Body Green) or Bear going down (Full Body Red), they are named decision
because the market is decided of the direction that is going, it reflects how the
price opened in any given time frame selected and how it closed, the full-body
shows in the direction it went. They are easily recognizable in a bull or bear
market
Example 2.5
Here is a good example of a decision
candles in the explosive rally of Gold
in 2011, we can see many consecutive
Bull Candles in Green representing a
whopping 400 $ increase in price the
price of gold. 33
Indecision candles how the name suggests are candles that don’t have a firm
direction and the market participants are struggling to decide what direction to go
to, the asset goes up and down finding areas where the market is in accordance
with price. They too are important because after a period of indecision it can
come more certain times. These candles are not as easily recognizable as the
decision candles and they are mixed between decision candles too, but with
practice and time, you will become familiar with them.
Example 2.6
Here is an example of how it looks when the market is in indecision time or

consolidation time, we stay with gold, in this case, is a monthly chart of the
painful time between 2013 to the end of 2015 when gold frustrated many
investors without any conclusive direction.
34
Together decision and indecision candles form a pattern that you can
recognize and use, we will use the patterns that in my research are the most
reliable and consistent over time. The patterns present in every time frame so we
have to stick with our time frame to not mix the signals.
This patterns over time have acquired names so we will call them how they
are normally called in trading.
Evening Star and Morning Star: These patterns are great in predicting a top or
bottom from the preceding trend. First, we will see how they look and then we
will use real examples.
Example 2.7
The pattern on the left is Evening Star is a bearish signal suggesting that the
preceding bullish trend may be over. On the contrary, will be the Morning Star
pattern is the same but in the opposite direction suggesting a bottom maybe it has
been struck.
35
The above charts show how this pattern look ideally, so in the next example
let’s see how it looks in real-time charts.
Example 2.8
The great trade of 2017 this is Bitcoin daily chart looks great if you are in the
preceding bullish trend where it went from 5000 $ to 18.000 $, at that top like we
already said analysts were predicting a 50.000 $ Bitcoin and many hard-working
families decided to invest just by hearing all the buzz around this asset
disregarding what Market Sentiment and our indicator was telling, we can see in
the top a clear Evening Star pattern in December 2017 and we all know what
came after. In the examples chapter combining all of our indicators, we will see
the full picture in that precise moment what our Market Sentiment Indicator is
capable of.
36
Together with the ones we just saw, here are some examples of the most
reliable candlestick patterns that I been using in my trading, with the same
principle possible top or bottom for exiting our position only.
Let’s start with the most common Bullish patterns:
Examples 2.9
Tweezer Bottom
Bullish Engulfing
37
Rising Sun
Three Method
Three White Soldiers
38
Now let’s see the Bearish Patterns:
Examples 3.0
Bearish Engulfing
Three Method
Three Black Crows
39
Dark Cloud Cover
Tweezer Top
As we can see there are many patterns, moreover, we don’t have the holy truth
if you find patterns that work together perfectly in our strategy you can include
them in your trading remember we are always evolving and discovering new
things every day.
40
Chapter Six - (Crucial) Capital Management
Okay, the title of this chapter is somewhat of a tabloid news, but is the truth
when investing or trading; if you notice that I use a-lot investing or trading; this
has a good reason why I want to emphasize in the difference between them,
obviously both seek profit in the stock market, cryptocurrency market, gold
market or forex market but they pursue this objective in a very different way.
Traders timeframe is shorter it can be minutes, days or weeks, they jump in

and out of the assets constantly, looking for short term profits, and usually do
many trades a month, market sentiment strategy works well for this kind of
traders. In contrast, investors timeframe is longer usually months, years and
market sentiment strategy fits perfectly for this kind of investors too, so
timeframe is the biggest difference between both of them, they have more
difference like the speculative nature of day traders but we will just focus on the
timeframe difference because it applies to our study.
I put all this into context because it is a big difference you must understand
because your timeframe is decisive when using this strategy so you don’t mix the
signals for wave counting, Fibonacci numbers or candles. The timeframe will
determine what kind of investor you’re and your exits must be in accordance with
your timeframe, for example, you shouldn’t chart in a short timeframe and expect
exits in a longer timeframe and vice-versa, as well as placing waves in a
timeframe and Fibonacci retracements and expansions in other.
Taking this difference between investors out of the way, we can focus on
the sensationalist title of this chapter Capital Management. We came far way in
our study by now so let's get into the section most people ignore and dislike, in
fact, dislike because it is the part when you are losing money and have to rethink
positions and plan exit strategies. Let's face it no one likes to lose money but is
part of the business , if we focus on maintaining this loses small, we will succeed
without speculating in every trade decision.
Chapter Six - (Crucial ) Capital Management
As a result, good capital management is as important as any acceptance of

your investing. It will preserve your money in the bad times and that is really
handy, ignoring it is a big mistake that maybe it can cost you a lot of money.
Here is when your plan enters into play if you placed correct your waves, and
fibonacci extensions/retracement stick to them don’t reshape as the time goes
looking for bigger profits or just not wanting to exit a loosing trade and not
assuming the loss this is the hardest part of investing and for beginners
sometimes is hard to understand , for example if you have 500 $ in your trading
account and you lose them all you couldn’t trade anymore but if you exit
correctly any losing trade you will always live another day having the chance to
win your money back. Is very simple but sometimes the simplest of things are
the hardest to comply.
Another important aspect of money management is the leverage you are using,
for example in forex market you have leverage of up too 200:1; which in my
opinion is crazy it can wipe your account in seconds; mostly beginners or small
investors use this leverage wanting to make quick money which usually they
don’t end up making.
There’s a rule that you shouldn’t risk more than 10 % of your capital in any
given trade, well all rules are meant to be broken and you just have to figure out
by yourself exactly what is your number, this number can be deferred from
friends, family, books etc, you must be honest and know how much you can
afford to lose without compromising your budget.
Instead, of gambling with your money is better to grow it little by little but
with the highest probabilities on your side and that is what we’re trying to
achieve here, I know its not as fast as promised in so many news, gurus and
services but is more probable than this fake information.
42
Elliot Waves Principle like we saw in the third chapter has simple but strict
rules, for example, if wave 2 retraces 100 % of wave 1 the count is invalidated so
it’s telling us that the market sentiment is not really as strong as we thought, so
we have to rethink our position, exit if that is the case with a minimum lost and
find a better opportunity with highest chances of success. For this reason, you
need to fully understand the Elliot Wave Principle before using my strategy.
As taking profits if the market is going your way and your plan executes perfectly
we come with the next question when to exit and take profits. Like we said
markets are not perfect or assured correspondingly if it's going your way and
goes exactly as planned may be in the way it can change and you have to be
prepared to notice this so you should move your stops as the trade goes in your
favor by doing this you will lock in some profits and at the same time let the
market decide when its time to exit.
All of this tells that we must be cold-blooded when investing, we cannot fall
in love with any asset doesn’t matter how beautifully is charted; for example as
Bitcoin that has fanatics that are willing to lose all their investment just by
backing it even when it’s going wrong and this irrational form of investing leads
devotees in some cases to pay endless monthly interest in their credit card on
which they bought bitcoin this means a double loss or the double mortgage some
people took and now are stuck with a bad investment and an even worse debt
just by not getting out on time.
When we let our emotions get inside our investments then they become
compromised by what we think about a specific asset and we stop thinking about
this asset in a truly transparent way. As a result, it will be harder for us to assume
a loss because we will think that eventually, it will go our way, or to take profits
on time because we are blinded and think it will go up indefinitely.
43
With this in mind, we come to something many investors leave behind in the
books but is actually as important as everything else is the Opportunity Cost of
your investment decision.
In economics, this means by investing today in a determined asset the

opportunity you are loosing if you had invested this same funds in an alternative
investment. Okay I know for the experienced this is a very simplified explanation
but is like that let’s make an example with actual numbers and how it could have
been applied to our market sentiment strategy.
Example 3.1
44
Example 3.2
In this two examples, we compared the price action of this assets dated in
December 2017, in one hand we have Bitcoin with a price reaching 19.000 $ and
Apple Inc. with a price of 173 $, at this point of time as some can remember
Bitcoin price target was 120.000 $ by almost everyone out there in the news
opposed to Apple Inc. price target that was mixed due too the declining iPhone’s
sales.
45
Let’s see how this continues forward in the next two examples.
Example 3.3
In September 2018 the Bitcoin fans got a slap back to reality with a brutal 9
month decline in the price or a 69 % decline.
46
Example 3.4
And In September 2018, Apple Inc price rose to 227 $ for a great ride in
percentage terms 30 % to be exact.
47
There are two things we can observe from the above examples first more
often than not the big gurus, big names, rating agencies, and news are wrong
predicting the future price of assets, frankly, in my opinion, they don’t care about
it if they are wrong or right, they just need to sell you something today that in 9
months nobody or very few will remember.
The same happened in the global financial crisis in 2008 all the big rating
agencies ( Standard & Poor’s, Moody’s and Fitch Group ) had a favorable AAA
rating for insolvent financial institutions and risky mortgage-related securities
that trigger the financial crisis. Today almost nobody remembers what happened
11 years ago, and how the agencies were too involved in the creation of the crisis,
because no investor will invest in risky mortgage-related securities if the rating
was a C or D right. We are not pointing or making any accusations just putting
the puzzle together with the actual facts.
Thats why I emphasise one more time don’t trust your hard earned money
in the first information you come with.
Example 3.5
48
The next and most important thing we can see is the Opportunity Cost of
our investment decision, let’s do the math.
If we decided to invest in Bitcoin in December 2017 following everyone

at that moment and with an initial investment of 100.000 $ :
Initial Investment Bitcoin Price Bitcoin’s
100.000 19.000 5.26
So doing the math we could have bought 5,26 Bitcoin’s
Opposed to the Bitcoin investment we could have bought in the same

moment and with the same 100.000 $ :
Initial Investment Apple Price Apple Shares
100.000 173 578
49
Going forward to September 2018 the equation goes like this:
Apple Shares Apple Price Current Position Initial Investment Profit %
578 227 131 206 100 000 31 206 31.02 %
Bitcoin’s Bitcoin Price Current Position Initial Investment Profit %
5.2 6000 31 200 100 000 -68 800 -68.80 %
In summary what we have here is if you had bought Bitcoin in December

2017 you would have a loss of 68,80 % on your initial investment instead if you
invested on Apple Inc. in the same time December 2017 you would have a profit
of 31,02 % on your initial investment and this my friends is Opportunity Cost of
your investment decision.
As we can see the Opportunity Cost is as important as everything else when

you are investing, a bad decision can have a catastrophic result on your portfolio.
That is why Capital Management is so important in the same investment

example above if you had cut your losses in Bitcoin without any emotions and
reinvested in Apple Inc. you would still be seating on a profit.
50
I know it is easy to write an example when it is just backtesting history and

that is a different story when you are trading live and you have to decide at the
moment but that is part of investing.
If you deal with your emotions daily and don’t fall in love with any asset, in
particular, you will be a much better investor you will see the markets honestly
and transparently and at that moment is when you start being truly successful.
“ Success is not luck is hard work, discipline and education”
51
Chapter Seven - Using them together
In this chapter, we will make a summary of everything that we have studied

throughout the book, hoping that you found all the information useful and can be
adapted to your investing/trading style so you can become more confident and
successful.
Let’s review the steps:
1- Elliot wave, first we must try to identify in which wave of the trend we are in
on a longer time frame and work our way down to our trading system time frame.
2- Fibonacci, draw your retracement and extensions levels and in conjunction

with Elliot wave, determine probable outcomes where the market can go.
3- Candlestick, look for any candlestick pattern studied for possible reversal
points in the trend.
4- Capital management, if all your parameters are met and you decide to invest/
trade manage your risk for good capital management.
This is just a basic blueprint you should look every time you trade any asset,
remember there is no holy grail, no shortcuts and no get rich quick without
working and studying. So elaborate your plan, stick to it and manage your risk.
When using all the instruments together is important that all the requirements
are met for a higher probability trade, sometimes it is hard to spot it at the
moment but with practice and patience, you will get there.
52
I wanted to leave for this chapter the most recent example of market
sentiment and the power of our strategy. For quite some time people have been
doubtful of the most recent high’s the US stock market had been doing almost
every month, but like an investor, you are chasing profits so you will never get in
front of a moving train right. Every month, as we got new highs the sentiment,
grew stronger and stronger about the sustainability of this path and when it will
end.
And finally, it came the new Coronavirus (COVID-19) the perfect excuse
of why the market is tumbling. The media, gurus, internet, etc. are having a ball
selling new information every day about this subject.
I know that the situation globally concerning the spread of the virus is really
bad, and many economies around the world will suffer from this, but is this the
real cause of the market meltdown? With shares valued to perfection, this means
they where valued 10, 15 or 20 times they're earnings, is this correct or is just
huge market speculation?
In a word; that nobody likes; for me, this sounds like a bubble waiting to
explode, having easy money around the world, very low-interest rates in many
countries is just a matter of time investors of all kinds, used this free money to
buy assets, in this case, it means buying stocks with cash or margin as long as the
market went up, everything was okay this is an accident waiting to happen.
Let’s not differ from our subject and chart this using our market sentiment
strategy and see what the mass of investors was thinking and if somehow we
could have predicted the most recent drop in the market and protected ourselves.
53
Example 3.6
54
In the example above we have a monthly chart of the Dow Jones Industrial
Average Index, the monthly chart is used not for convenience or randomly is used
because we can find a significant bottom after the Great Recession in March 2009
and we can, in one graph forward to today's price.
But for studying and practicing purposes you can zoom in to shorter time
frames and watch how our market sentiment indicator is appreciable and works in
all of them. The Fibonacci retracements too are not picked randomly for
imposing our system, they are picked in the monthly chart where there is a 14 %
decline or more from previous high making it a correction, but not falling 20 %
defined as a Bear Market.
The areas of retracement and expansion are perfectly outlined by the powerful
Fibonacci Numbers and the Elliot Wave Counting gives us where we are in the
Bull Market, it cannot be more clear than this.
In this case, when the Bull Market entered the expansion area of 1.618% in
the 5th wave, we started getting market jitters; remember the structures will never
be perfect is probabilistic and it can last months or years in the area, so when the
market enter our area we could have just exited our positions for protection (of
course we would have missed part of the profits but we will have protected the
profits already made remember Capital Crucial Management).
Continuing forward this market jitters turned into a more than 20% declined
from previous high’s meaning we officially entered a Bear Market. In the next
part the A, B, C correction is developing as this book is written so maybe in the
next book some months away we will have the answer of how this will end.
55
But it seems that we are missing something right? Where are the Candlestick
Patterns in all of this? Again let us go to the charts and zoom in on all the waves
and see what we can find.
Example 3.7
In the first wave, we find the pattern Three Black Crows before the retrace
to Wave two. The first wave is very important to determine but sometimes it is
the hardest, we have to follow closely the market we want to trade to find the
bottom or top and start working from there. Many times we will miss this first
entry but is perfectly fine there will be plenty of opportunities to enter later if we
plot it right.
56
Example 3.8
With the first wave already determined, we plot our retracement zones and
wait for the market to find its way to a potential retrace zone, in this case, the
market went to the 0.618 zone and begins its ascend from there, as we can see in
the chart a Bullish Engulfing pattern forms in the bottom.
This pattern in a monthly chart combined with the retrace to 0.618 zone; my
friends it can’t get better than this; is a strong, reliable and probable set up for the
continuation of the preceding trend.
57
Example 3.9
Having the formation of Waves one and two we place the probable expansion
zones in our chart and wait for the market to do its thing, in this case, it went up
to the 1.618 Fibonacci expansion zone.
When the market gets up to this zone we must start taking defensive actions,
because the push to this zone means that the market sentiment in this uptrend was
really strong and euphoric and is maybe due for a small or big correction.
The candlestick pattern that forms in this situation is not as clear as the ones in
the first waves, that’s why we must be monitoring our charts and strategy all the
time. More often than not the patterns are hard to find in real-time however with
hard work and studying it will start getting easier and easier.
The pattern that forms here is the Bearish Three Method is not a perfect
formation this time, but combined with the expansion zone 1.618 area is telling
us that the strong bullish market sentiment is exhausting and has the probability
of retrace.
58
Example 4.0
The fourth wave, the last retrace that opens the door for the final and
strongest wave of the count, this wave made the retracement exactly to the 0.618
area with a double bottom; like we said the patterns are not perfect all the time.
In the 0.618 area, it made two bottoms described in the example with number
one and two, in number one we see a bullish engulfing exactly in the 0.618 area
just to retrace back in a couple of months to the exact 0.618 area, then in number
two we have the second and final Bullish Engulfing and the commence of the
fifth and final wave.
Remember markets can come to an area and start ranging for a couple of
months we need to have patience and let the market do its thing.
59
Example 4.1
Here we are in the final wave, in this case, is the last push of enthusiasm,
where all the participants in the market are extremely bullish and it seems like
nothing can bring this down; again this is the time when we have economic
reporters, news, gurus even professors forecasting a 35.000 Dow Jones Industrial
Average Index; like nothing can go wrong.
But in real terms savvy informed investors are getting defensive and are
waiting for a signal to get out of the market without losing the last part of the
strong rally.
60
The idea of Capital Management is not to lose a strong trend if you are
already inside the market, it is to manage does profits in a way that you don’t lose
them, or even turning a winning position into a losing position. So when we are
in a trade like we discuss already many times we structure our trade and look for
possible retracement and expansion zones, therefore, knowing possible scenarios
of our trade that ultimately can go either way.
In this occasion when the third wave was completed with the retrace to the
fourth wave we drew our possible expansion zones for the fifth and final wave,
we delineated our possible scenarios with the expansion zones 1.618% around
24.000 Dow Jones Industrial Average and 2.618% around 32.000 Dow Jones
Industrial Average. Remember zones are just a blueprint so we are able to see in
the charts the most probable outcome; by any case zones are perfect that’s why
we must be always monitoring our positions; getting back to our example the
market overextended between the 1.618 % and 2.1618 % expansion zones to
29.000 Dow Jones Industrial Average.
As we can identify in example 4.1 when the market entered the 1.618% area
it started signaling with multiple candlestick patterns possible reversal red flags
on the market. As we already know markets are not rigged and can range when
they enter possible reversal or expansions zones. This time the market gave us
not just one or two flashes but four before it came the final crash; so the question
comes again is the Coronavirus disease (COVID-19) Pandemic the real culpable
of the market drop, or it was already a long time before signaling possible cracks
in the markets and global economy. In my opinion, as we can see in the charts the
signals came almost a year before the actual market crash of 2020, so what we
can conclude from all of this is that the pandemic is just what the media has to
write about right now but is not the creator of the crash.
61
The cracks in the global economy were already there long before the
pandemic came; thus we come to our primary subject don’t trade/invest your
hard-earned money believing everything you hear and see. Investing this way can
have catastrophic consequences in your portfolio.
So what can we have done to protect ourselves in this scenario well when the
market entered the 1.618% expansion area and gave the first Bearish Engulfing
Pattern we could have just exited the market and wait, but we would have lost
part of the rally and had to wait almost a year for the actual crash. You could have
exited half of your position and see how it develops; there are many options you
have to manage your investment, you must be honest and manage the risk/reward
scenario that suits your style of trading and personality.
This are just examples of what we can do, the one that best fits my trading
style and personality, is the moment the market enters to the areas of interest I
start using defensive stances with a tight Capital Management of the positions I
held, is better to lose some part of the rally than losing the profits already made.
In reality, it is not just losing the profits is the Cost of Opportunity incurred is
being able to enter back in the market on a better or lower price, is to buy
important companies at a discount price, this is what in the long run grow your
bank account.
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Chapter Eight -Conclusion
Trading gurus, expensive market subscriptions, fancy newsletters, etc. Like

we studied and illustrated throughout the book you don’t really need them if you
want to start trading/investing in the different markets around the world.
1st = Don’t base your investment strategy following what you listen.
2nd = Before even investing manage your risk.
3er = Study the asset before investing.
4th = Keep it simple.
A professional investor/trader knows that there is never a perfect investment

there’s only probabilities and capital management, failing in one investment is
not the end of the world, and they know their enemy (the market and themselves)
for this you need to educate yourself.
There are many misbeliefs on why we never beat the markets, some sound like
the market is manipulated, if I lose I’m a loser, or it is impossible to win money
in the markets. Instead of believing that as a professional investor we should say I
didn’t understand the market in a precise moment and I traded wrong, loosing is
part of a successful investor and I learned my lesson, the markets as free as they
are present opportunities for everyone.
Our market sentiment indicator is just a blueprint of how we can invest/trade on

the Stock, Gold, Forex and Cryptocurrency markets in a healthier way than
focusing on transitory, short-lived information that most media needs to sell
every day.
63
Chapter Eight - Conclusion
I hope the goal of this book was achieved, and by now my colleague you
can separate the transitory events that happened and will happen from your
investing. As well as realizing that stratospheric crypto valuations without
support are not real ( not taking or giving validity to cryptos), that a Trump rally
is not a real thing (this is not a political statement against or in favor ), Viruses
don’t kill a Bull Market ( Investors sentiment and wrong valuations do) and so
much more media affirmations we come to believe and listen every day as an
investor.
I hope my fellow readers that you found something valuable in this book that
will help you become a better investor/trader.
“ Success is not luck is hard work, discipline and education”
64

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Don't Chase Butterflies When You Invest 1st Edition

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By L.

Don’t Chase Butterflies

1st Edition (English)

Do your Own Research:

No content in this book constitutes or should be taken as a recommendation to enter in any

Errors & Omissions:

Copyright © 2020 by L J Tortosa All Rights Reserved.

Common wisdom inside Wall Street or Exchanges around the world

In a time when every market move is attributed to an event to justify its

Markets cannot be caged in such a simple way because if it was; we all be

200,000,000,000 / 3,100,000,000,000 = 0.0645 = 6.45 %

Continuing with history what is known as the Bretton Woods International

In my opinion, good things sometimes come to an end without any reason

- Physical Bullion is in the form of coins and bars is a little impractical

- Exchange-Traded Funds ( ETF’s) is an investment fund traded on stock

Particularly in this market, there is a lot of miss-information and many

Cryptos are traded in cryptocurrencies exchanges much like a traditional

Here is a chart of BTCUSD or Bitcoin in US dollars, depending on

1995 Foreign Exchange Currency ( FOREX )

Currencies are traded in the international Over-the-Counter Market ( OTC) 2

1602 First Shares Issued

Market cycles repeat throughout history from one asset to another, so we

Next to Elliot Wave Principle we will use Fibonacci Retracement

Let's review the basic principles of the Elliot Wave methodology:

This is just a summarized explanation of how Elliot Wave Theory works.

As we can observe we can explain this chart in the theory of waves,

Analyzing and understanding this kind of situation and trading it honestly

The next piece of our puzzle is the Fibonacci Retracement Numbers as we

These numbers are explained in first hand as a Fibonacci sequence, which is

I know is hard to believe or maybe a little confusing that something so old

Continuing we can start forming our market sentiment indicator, on one

Trend Wave No.1 and Counter Trend Wave No. 2

Following the preceding trend, we could have identified the counter-trend or

Trend Wave No.3

Counter Trend Wave No. 4

Trend Wave No.5

Here is a good example of a decision

candles in the explosive rally of Gold

in 2011, we can see many consecutive

Bull Candles in Green representing a

whopping 400 $ increase in price the

Here is an example of how it looks when the market is in indecision time or

Let’s start with the most common Bullish patterns:

Three White Soldiers

Now let’s see the Bearish Patterns:

Three Black Crows

Dark Cloud Cover

Traders timeframe is shorter it can be minutes, days or weeks, they jump in

As a result, good capital management is as important as any acceptance of

In economics, this means by investing today in a determined asset the

If we decided to invest in Bitcoin in December 2017 following everyone

Initial Investment Bitcoin Price Bitcoin’s

100.000 19.000 5.26

So doing the math we could have bought 5,26 Bitcoin’s

Opposed to the Bitcoin investment we could have bought in the same

Initial Investment Apple Price Apple Shares

100.000 173 578

Going forward to September 2018 the equation goes like this:

Apple Shares Apple Price Current Position Initial Investment Profit %

578 227 131 206 100 000 31 206 31.02 %

Bitcoin’s Bitcoin Price Current Position Initial Investment Profit %

5.2 6000 31 200 100 000 -68 800 -68.80 %

In summary what we have here is if you had bought Bitcoin in December