The Master Swing Trader [Secure eReader]
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eBook by Alan S. Farley
eBook Category: Personal Finance
eBook Description: Part I: The Gateway to Short-Term Trading. Chapter 1. Trading the Pattern Cycle. Chapter 2. Preparing for the Market Day. Chapter 3. Analyzing the Market. Chapter 4. Building a Swing Trading Strategy. Chapter 5. Mastering the Tools. Chapter 6. Understanding Time. Part II: The 7-Bells: Tools to Locate Outstanding Opportunities. Chapter 7. Mastering the Setup. Chapter 8. Dip Trip. Chapter 9. Coiled Spring. Chapter 10. Finger Finder. Chapter 11. Hole-in-the-Wall. Chapter 12. Power Spike. Chapter 13. Bear Hug. Chapter 14. 3rd Watch. Part III: Making the Trade. Chapter 15. Precise Trade Execution. Conclusion: Thirty Rules for the Master Swing Trader.
eBook Publisher: McGraw-Hill Companies, Published: 2002
Fictionwise Release Date: July 2002
Market knowledge comes from the most unlikely places. In March 1983 I spent a week learning Native American survival and tracking techniques at a very cold farm in western New Jersey. Our class spent restless nights on a freezing barn floor and days investigating scat, nests, sounds, and a thousand little secrets that changed our way of viewing nature. We mastered some practical skills by the end of that grueling week. We could read the outcome of a sudden battle through a chaotic set of footprints. Owl vision focused our sight to the animal's point of view instead of our own. And we could sneak up on prey with a quiet fox walk without alerting them to our hungry intentions.
As my interest in the financial markets grew, I quickly realized that successful trading requires these same natural talents. The price chart takes the place of animal tracks but still demands our inner knowledge to interpret the endless conflict. We sense opportunity when we see through the eyes of the emotional crowd and measure its members' greed or fear. And we build consistent profits when we quietly sneak up behind them and empty their well-filled pockets.
Many traders never fully understand the nature of competition in the markets. We are taught in Sunday school or by well-meaning spouses to be nice to others in all of our daily activities. This makes its difficult to build the predatory instinct that leads to successful trading. Recognize our single purpose when the market opens each morning. We are there to take other people's money before they take ours. The only way to accomplish this task is to exercise a market point of view or trading edge that defeats this competition.
BIRTH OF THE PATTERN CYCLES
I remember the first time that I saw Bollinger Bands. I was amazed that such a thing could exist. My technical analysis skills were still very young, and simple stock charts were hard enough to understand. But these elastic bands went far beyond the patterns and indicators that I was reading about. They seemed to predict the future quickly and efficiently in an almost mystical way. This made no sense at all.
I spent weeks just staring at them. I would print out a stock chart and hold a piece of paper over the action. Then I would guess the location of the next price bar and move the paper over to see if I was right or wrong. Sometimes I knew exactly where the stock was headed, but other times I didn't have a clue. After awhile my predictive skills started to grow and my guesses became more and more accurate. I was certain that I had found the secret key to market success. Then I met John Yurko.
John was a staff member on the popular Compuserve Investors Forum. Before the days of the Net, this was the online place to chat with market professionals, traders, and other novices. One July 4 holiday weekend I saw John's brilliant comments on the board's technical analysis section and decided to ask him about Bollinger Bands. This simple inquiry started a fascinating relationship that lasted several years until his untimely death.
This amazing technician offered a wealth of market knowledge that I've never found on a financial bookshelf. He explained during our long chain of messages that I wasn't really predicting the future with Bollinger Bands. I was actually using the chart to read the past, and this was how I could see what would happen next. While Bollinger Bands improved my vision, the underlying patterns and trends within the bands were telling me where price was about to go. John also suggested that this complex world of chart patterns was really built upon a single unified structure. He never described its appearance, but it became clear to me that this master pattern might explain price movement through all time frames. I became fascinated with this intriguing concept and decided to learn more.
I looked for this master market pattern everywhere but could only find pieces of it. I noticed that stock charts would print the same old formations over and over again. There were triangles, wedges, and reversals from the classic books by John Murphy and Edwards and Magee. I saw more evidence through the big W in market bottoms and the five-wave decline in major selloffs. I discovered Fibonacci and Elliott but couldn't understand how all the pieces fit together.
It appeared to me that popular gurus were faring no better in their quest for true market knowledge. They would talk endlessly about a trading method or strategy but would rarely discuss the underlying mechanics that create opportunity in the first place. They would allege ownership of a common chart pattern and charge a fortune to those willing to pay for its secrets. And they would feed ruthlessly off their uninformed disciples with a few simple techniques they learned through actual market experience.
Finally, two brilliant traders opened my vision to this master pattern. Linda Bradford Raschke saw John's world and vividly describes it as a musical piece in her interview in The New Market Wizards, by Jack Schwager. She uses this clever analogy to illustrate how both sides of the brain must work together to visualize and interpret the broad range of price patterns. Stan Weinstein uncovers these same powerful mechanisms through classic trading strategies that rely on stage analysis in his book Stan Weinstein's Secrets for Profiting in Bull and Bear Markets.
The Traders Wheel was slowly brought to life through their powerful insight. In early materials that first appeared at Compuserve, the Wheel describes how markets move relentlessly from bottom to top and back again through all time frames. This first crude theory evolved over time and branched out into many different trading tactics. I later renamed it "Pattern Cycles" to acknowledge that these shifting market stages repeat in an orderly process. These broad concepts now form the core of my lecture materials and the Hard Right Edge (http:// www.hardrightedge.com) financial portal. In the beginning I didn't realize just how efficiently markets cycle through repeating price patterns. The original materials have grown well beyond my initial expectations. They now encompass all market movement and provide a simple definition for how price gets from one place to the other in a predictable manner. They also offer many powerful tools for swing traders to gain a needed edge over their competition.
Pattern Cycles describe the machine language within market opportunity. They reveal the origin of the trade setup and how to capitalize on inefficiency through every phase of bull and bear conflict. They show swing traders where to find consistent profits and offer natural methods to shift tactics quickly as conditions change. Above all else, this master pattern accurately predicts the impact of the emotional crowd on trend, range, and price development.
WHO SHOULD READ THIS BOOK?
This book describes an original trading methodology that relies heavily on classic technical analysis and pattern interpretation. It offers dozens of specific trading strategies and setups that include reward, risk, and stop loss considerations. It presents concrete tips, concepts, and workflows for readers to make informed choices at all stages of short-term trading development. It looks specifically at brokers, execution styles, and stock characteristics to offer advice on how to match personal lifestyle with trade management. Readers will note a highly original market view throughout the text that offers the journeyman trader extensive support on the road to consistent performance.
Enthusiasts at all levels of experience will appreciate this book's broad content and trading strategies. But it does assume knowledge of basic market mechanics and technical analysis. Take the time to build a core understanding of the financial world before attempting to absorb this text. Professional traders and other market insiders will find this book of great value for expanding their skills and improving their bottom line. And market timers will discover that technical analysis still has fresh ideas to offer after several centuries of noble service.
What does "swing trading" really describe in our modern markets? For decades, this expression referred to a futures market strategy that held positions from 1-3 days in order to capitalize on cyclical swings in buying and selling behavior. This classic concept now describes any execution method that avoids the hyperactivity of day trading. But this generic definition narrows the utility of this powerful art. In reality, swing trading characterizes a time frame-independent strategy that executes single, direct price movement. In this era of massive market liquidity, the swing trader may find excellent opportunities on both 5-minute and weekly charts.
The swing trader should read this book. But so should the day trader. And let's not leave out the position trader or technically-oriented investor. Day traders can discover short-term tactics that don't rely on scalping or frantic news releases. Mutual fund holders can improve their timing with these classic principles and swing their investments into a higher return. Is it unusual for one trading concept to have such broad applications? Not when that view includes all of the price patterns that markets can draw.
WHAT'S IN THIS BOOK?
The text begins with a detailed background on Pattern Cycles and the trend-range axis. It takes swing traders step by step through preparation, analysis and strategic considerations for each trade setup and execution. The middle section illustrates dozens of specific trading applications that include extensive discussion of profit and loss targets as well as position management. Take adequate time to read the first section before studying these examples and case studies. The text introduces many original terms, concepts and strategies into the trading workflow.
The book organizes information so that the swing trader first masters Pattern Cycles, advanced technical tools, and time management. It then demonstrates how to use these powerful forces to locate and execute outstanding short-term profit opportunities. The final section studies execution techniques and system choices that each reader must manage to access the modern market environment. Pay close attention throughout the text to the attitude of the successful swing trader and how the crowd becomes the source of profit at each turn.
CHAPTER 1: TRADING THE PATTERN CYCLE
Learn why the markets print repeating patterns over and over again. Discover the trend-range axis and see how it impacts every trade execution. Find out how swing trading differs from momentum trading. Begin the task of mastering the trade through knowledge of key market influences.
CHAPTER 2: PREPARING FOR THE MARKET DAY
Start the new day at the closing bell and get ready for the next market session. Build a solid database of promising stocks to watch for short-term profit opportunities. Learn the secrets of 3D charting and how the pattern points to reward and risk. Find out how market polarity continuously shifts internal trading mechanics between two active states.
CHAPTER 3: ANALYZING THE MARKET
Follow Pattern Cycles as they build new bottoms, eject into strong rallies, stall at major tops, and decline into painful selloffs. Study the secrets of this master pattern and see why it works through all markets and time frames. Learn how to apply volume tools that read the crowd and signal emotional peaks and valleys.
CHAPTER 4: BUILDING A SWING TRADING STRATEGY
Develop the edge that leads to consistent market profits. Measure the risks of momentum trading and master tactics that succeed in strong and weak market environments. Learn how to stand apart from the crowd at all times and use its mindless behavior for personal gain. Apply effective short sale strategies at every opportunity and manage advanced risk techniques to stay in the game for the long term.
CHAPTER 5: MASTERING THE TOOLS
Add dozens of highly effective technical tools to the trading arsenal. Find out how they work and when they should be ignored. Study a new proprietary indicator that signals major reversals and breakouts well ahead of the crowd's participation. Master morning gaps and quickly separate those that will fill right away from those that will never fill. Learn the secrets of pattern failure and how to trade popular technical patterns against the herd. Use multi-time frame Fibonacci retracements to locate turning points within a single tick.
CHAPTER 6: UNDERSTANDING TIME
Watch the market clock and see how it impacts the trading day. Identify specific times of day that show bullish or bearish tendencies. See how the 90-minute S&P alternation cycle impacts buying and selling behavior each day. Master trading strategies through the first and last hours as high volatility shakes out weak hands.
CHAPTER 7: MASTERING THE SETUP
Study the differences between classic and original chart patterns. Find out why original patterns provide more dependable results. Learn how to use whipsaws for personal gain. Develop perfect timing to enter promising trade setups at the lowest risk. Study original patterns that represent little-known profit opportunities.
CHAPTER 8: DIP TRIP
Learn to trade the pullback in all of its forms and incarnations. Use Fibonacci retracements to pinpoint reversals before they happen. Recognize bull flags as they print and see how to focus on their natural breakout levels. Review detailed case studies to gain an edge over the competition.
CHAPTER 9: COILED SPRING
Trade breakouts from the narrow range price bar. Build strategies to capitalize on this versatile pattern regardless of which way the market goes. Find out the differences between dull sideways markets and those about to explode into a new trend. Review pattern variations that appear over and over again in diverse market conditions.
CHAPTER 10: FINGER FINDER
See how one-bar candlestick reversals offer important swing trading signals. Learn to use multi-time frame analysis to build profitable setups that respond to dojis, hammers, and harami candles. Find these patterns in the intraday markets to pinpoint turning points and profitable opportunities. Add three original candle setups to the swing trader's toolbox.
CHAPTER 11: HOLE-IN-THE-WALL
Study a new gap that generates promising setups and dependable profits. See why other authors and traders missed it for decades. Build diverse strategies to take advantage of price action after the gap occurs. Learn how to predict future trend after the crowd responds.
CHAPTER 12: POWER SPIKE
Predict how heavy volume will impact subsequent trading activity. Use high-volume events to execute a variety of trading tactics that take advantage of Pattern Cycle stages. Recognize the differences between climax volume and breakout volume. Find out how to trade pullbacks after big-volume breakouts.
CHAPTER 13: BEAR HUG
Master the short sale and pinpoint the best times to avoid the short squeeze. Find markets in bear rallies that have run out of fresh buyers. See how narrow range bars signal impending selloffs and invite low-risk short sale opportunities. Recognize the market patterns that signal imminent declines and study detailed examples of successful short sale strategies.
CHAPTER 14: 3rd WATCH
See why triple tops offer tremendous profit opportunities. Learn many variations of the classic cup and handle breakout. Find frequent low-risk entry points with high reward potential. Recognize this classic setup on many intraday charts. Identify specific stop loss and profit targets that take advantage of the pattern. Use the third rise into any type of resistance to locate a short-term trade.
CHAPTER 15: PRECISE TRADE EXECUTION
Apply Pattern Cycle analysis to execution tactics and increase profits. Manage diverse intraday tools to master the market environment regardless of short-term conditions. Find out how to filter impending setups through the Level II screen or ticker tape to reduce risk. Discover when ECNs work and when they invite danger. Choose an execution system and broker to match a specific trading style or personal plan. Find out how the markets tell lies through every session and how to play with the liars.
CONCLUSION: THIRTY RULES FOR THE MASTER SING TRADER
Review key concepts that build outstanding profit performance. Step into the shoes of the master swing trader.
HOW TO USE THIS BOOK
This book will immediately benefit both active market participants and part-time trading enthusiasts. Keep a charting database or website close at hand through the study of each chapter. Find fresh examples of the trading concepts through current market action or favorite stock picks. The Master Swing Trader describes a visual universe that requires personal experience to be fully understood. This presentation does not represent an isolated market occurrence. It forms an inner structure that guides the development of all chart patterns and indicators.
The best results will come when the reader practices these original strategies through actual trade execution. Experiment with the new concepts and add them slowly into the trading toolbox. An immediate improvement in market vision will provide the first benefit. Take extra time to internalize the dozens of case studies and examples throughout the book. They will open up fresh tactics and build confidence when taking a position ahead of, behind, or against the restless crowd. But don't stop there.
The detailed illustrations enable the reader to visualize a new market reality. This unsuspected world offers intense feedback on the current trading environment. Pattern Cycles also present a dynamic system that digests price change and updates the charting landscape in real-time. This allows the swing trader to master a powerful execution strategy that few others will ever see.
Copyright © 2001 by McGraw-Hill Companies, Inc.