Trading Basics E-Book

Thomas N. Bulkowski

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Trading Series
• Sprache: Englisch
• Veröffentlichungsjahr: 2012

Seitenzahl: 309

Beschreibung

Comprehensive coverage of the four major trading styles Evolution of a Trader explores the four trading styles that people use when learning to trade or invest in the stock market. Often, beginners enter the stock market by: * Buying and holding onto a stock (value investing). That works well until the trend ends or a bear market begins. Then they try * Position trading. This is the same as buy-and-hold, except the technique sells positions before a significant trend change occurs. * Swing trading follows when traders increase their frequency of trading, trying to catch the short-term up and down swings. Finally, people try * Day trading by completing their trades in a single day. This series provides comprehensive coverage of the four trading styles by offering numerous tips, sharing discoveries, and discussing specific trading setups to help you become a successful trader or investor as you journey through each style. Trading Basics takes an in-depth look at money management, stops, support and resistance, and offers dozens of tips every trader should know. Fundamental Analysis and Position Trading discusses when to sell a buy-and-hold position, uncovers which fundamentals work best, and uses them to find stocks that become 10-baggers--stocks that climb by 10 times their original value. Swing and Day Trading reveals methods to time the market swings, including specific trading setups, but it covers the basics as well, such as setting up a home trading office and how much money you can make day trading.

Leseprobe

Contents

Cover

Series Page

Title Page

Copyright Page

Preface

EVOLUTION OF A TRADER

CONTENT OVERVIEW

INTENDED AUDIENCE

Acknowledgments

Chapter 1: How to Retire at 36

CHAPTER CHECKLIST

Chapter 2: Money Management

TRADING: HOW MUCH MONEY, HONEY?

ORDER TYPES: READ THE FINE PRINT!

POSITION SIZING: MY STORY

POSITION SIZING BY MARKET CONDITION: BULL OR BEAR?

HOW MANY STOCKS TO HOLD?

A BETTER WAY? PORTFOLIO COMPOSITION

HOLD TIME: HOW LONG IS LONG ENOUGH?

HOLD TIME: MY TRADES

THE MONEY MANAGEMENT MATRIX

SHOULD YOU SCALE INTO POSITIONS?

AVERAGING DOWN: THROWING AWAY MONEY OR SMART CHOICE?

SCALING OUT OF POSITIONS: A PROFITABLE MISTAKE?

DOLLAR-COST-AVERAGING: GOOD OR BAD?

USING LEVERAGE: AN EXPENSIVE LESSON!

LEVERAGE GUIDELINES CHECKLIST

CHAPTER CHECKLIST

Chapter 3: Do Stops Work?

WHAT IS HOLD TIME LOSS?

MENTAL STOP: FOR PROFESSIONALS ONLY!

MINOR HIGH OR LOW STOP: A GOOD CHOICE

SQUARING OFF ROUND NUMBERS

CHART PATTERN STOP: TOO COSTLY?

STOPPED BY A MOVING AVERAGE

THE TRUTH ABOUT TRENDLINES

TRENDLINE STOP

FIBONACCI RETRACE STOP: DEAL OR DUD?

FIXED PERCENTAGE TRAILING STOP

VOLATILITY STOP

CHANDELIER STOP LEAVES YOU HANGING

TESTING SIX STOP TYPES

WHAT I USE

CHAPTER CHECKLIST

Chapter 4: Support and Resistance

TYPES OF SUPPORT AND RESISTANCE

MEASURED MOVE SUPPORT AND RESISTANCE

MINOR HIGH RESISTANCE

VOLUME AT MINOR HIGH RESISTANCE

MINOR LOW SUPPORT

VOLUME AT MINOR LOW SUPPORT

MINOR HIGH SUPPORT

MINOR LOW RESISTANCE

GAPS SHOWING SUPPORT AND RESISTANCE

MYTH: TALL CANDLE SUPPORT AND RESISTANCE

HORIZONTAL CONSOLIDATION REGIONS

ANOTHER LOOK AT ROUND NUMBERS

SUPPORT IN STRAIGHT-LINE RUNS

RESISTANCE IN STRAIGHT-LINE RUNS

SAR SUMMARY

CHAPTER CHECKLIST

Chapter 5: 45 Tips Every Trader Should Know

DETERMINING STOCK OR MARKET DIRECTION

FINDING THE MARKET BOTTOM

VISUAL TIPS

CHAPTER CHECKLIST

Chapter 6: Finding and Fixing What Is Wrong

WHAT WAS THE MARKET BEHAVIOR?

WAS THE INDUSTRY TRENDING?

HOW IS THE TIMING?

ARE ALL ENTRY CONDITIONS MET?

WAS THE POSITION SIZE PROPER?

WAS AN INITIAL STOP USED?

DID YOU EXIT BEFORE THE STOP?

WHAT WAS THE RISK/REWARD RATIO?

DID YOU AVERAGE UP?

DID YOU AVERAGE DOWN?

ARE YOU BUYING OUT OF SEASON?

TRADING CHECKLIST

CHAPTER CHECKLIST

Chapter 7: What We Learned

CHAPTER 1: HOW TO RETIRE AT 36

CHAPTER 2: MONEY MANAGEMENT

CHAPTER 3: DO STOPS WORK?

CHAPTER 4: SUPPORT AND RESISTANCE

CHAPTER 5: 45 TIPS EVERY TRADER SHOULD KNOW

CHAPTER 6: FINDING AND FIXING WHAT IS WRONG

Visual Appendix of Chart Patterns

Bibliography

OTHER SITES OF INTEREST

About the Author

Index

Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers' professional and personal knowledge and understanding.

The Wiley Trading series features books by traders who have survived the market's ever changing temperament and have prospered—some by reinventing systems, others by getting back to basics. Whether a novice trader, professional or somewhere in-between, these books will provide the advice and strategies needed to prosper today and well into the future.

For a list of available titles, visit our website at www.WileyFinance.com.

Cover design: John Wiley & Sons

Copyright © 2013 by Thomas N. Bulkowski. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, [phone], fax [phone], or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, [phone], fax [phone], or online at www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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Library of Congress Cataloging-in-Publication Data:

Bulkowski, Thomas N., 1957- Trading basics : evolution of a trader / Thomas N. Bulkowski. pages cm. — (Wiley trading series) Includes bibliographical references and index. ISBN 978-1-118-46421-2 (cloth); ISBN 978-1-118-48831-7 (ebk); ISBN 978-1-118-48838-6 (ebk); ISBN 978-1-118-51694-2 (ebk) 1. Portfolio management. 2. Investments. I. Title. HG4529.5.B85 2013 332.64—dc23 2012032671

Preface

Are you like John?

He learned early in life to save his money for a rainy day. Instead of putting it into the bank, he put it into the stock market. He bought Cisco Systems in mid-1999 at 35 and watched the stock soar to 82 in less than a year.

“I'm looking for my first 10-bagger,” he said, and held onto the stock.

In 2001, when the tech bubble burst, the Cisco balloon popped, too, and it plunged back to 35. He was at breakeven after seeing the stock more than double.

“It'll recover,” he said. “It's a $200 stock. You'll see.”

The stock tunneled through 35 then 30, then 20, and bottomed at 15, all in one month. When it hit 10, he sold it for a 70 percent loss.

“I should have sold at the top. Buy-and-hold doesn't work.” But it did work. Cisco more than doubled, but he held too long.

Next, he tried position trading to better time the exit and chose Eastman Chemical. He bought it in 2003 at 14, just pennies from the bear market bottom, and rode it up to 21 before selling. He made 50 percent in a year. Was he happy?

“I sold too soon.” The stock continued rising, hitting 30 in 2005. He disliked seeing profits mount after he sold, and wanted to profit from swings in both directions.

He switched to swing trading in 2005 and tried his old favorite: Cisco. The stock bounced from 17 to 20 to 17 to 22 over the next year, but he always bought too late and exited too early. He made money, but not enough.

He took a vacation from his day job and watched Applied Materials wave to him on the computer screen, inviting him to come day trade it. So he did. He made $400 in just 15 minutes. “If I can make $400 a day for a year, I'll make”—he grabbed his calculator and punched buttons—“$146,000! No, that's not right. How many trading days are there in a year?”

He redid the math and discovered that he could make $100,000 a year by nibbling off just 40 cents a share on 1,000 shares every trading day. “Wow. Count me in.”

After paying $5,000 for a trading course and more for hardware, software, and data feeds, he took the plunge and started day trading full time.

It took a year to blow through his savings. Another three months took out his emergency fund. He moved back in with his parents while he looked for a real job.

Now, he is saving again and putting it to work in the market. “After reading the manuscript for this book,” he said, “I found a trading style that works for me. I'm a swinger—a swing trader. And I'm making money, too.” He handles not only his own money but his parents and siblings as well, providing them with extra income and building a nest egg for their retirement.

EVOLUTION OF A TRADER

John represents an amalgam of traders, a composite of those searching for a trading style that they can call their own. He suffered through many failed trades before finding a trading style that worked for him. I wrote the Evolution of a Trader series to help people like John.

Evolution of a Trader traces my journey from a buy-and-hold investor to position trader to swing trader to day trader as I searched for styles that worked best when markets evolved. However, these are not autobiographical. Rather, they are an exploration of what has worked, what is supposed to work but does not, and what may work in the future.

This series dissects the four trading styles and provides discoveries, trading tips, setups, and tactics to make each style a profitable endeavor. I have done the research so you do not have to. I show what is needed to make each style work.

CONTENT OVERVIEW

The three books in the Evolution of a Trader series provide numerous tips, trading ideas, and setups based on personal experience and that of others.

Easy to understand tests are used to confirm trading folklore and to illustrate ideas and setups, and yet the books are an entertaining read with an engaging style that appeals to the novice.

Each section has bullet items summarizing the importance of the findings. A checklist at chapter's end provides an easy-to-use summary of the contents and reference of where to find more information.

At the end of each book is a topic checklist and reference.

Trading Basics

The first book in the series begins with the basics, creating a solid foundation of terms and techniques. Although you may understand market basics, you will learn from this book.

How do I know? Take this quiz. If you have to guess at the answers, then you need to buy this book. If you get some of them wrong, then imagine what you are missing. Answers are at the end of the quiz.

From Chapter 2: Money Management

1. True or false: Trading a constant position size can have disastrous results.

2. True or false: A market order to cancel a buy can be denied if it is within two minutes of the Nasdaq's open.

3. True or false: Dollar cost averaging underperforms.

From Chapter 3: Do Stops Work?

1. True or false: Fibonacci retracements offer no advantage over any other number as a turning point.

2. True or false: A chandelier stop hangs off the high price.

3. True or false: Stops cut profit more than they limit risk.

From Chapter 4: Support and Resistance

1. True or false: Peaks with below average volume show more resistance.

2. True or false: Support gets stronger over time.

3. True or false: The middle of a tall candle is no more likely to show support or resistance than any other part.

From Chapter 5: 45 Tips Every Trader Should Know

1. True or false: Fibonacci extensions are no more accurate than any other tool for determining where price might reverse.

2a. True or false: Only bullish divergence (in the RSI indicator) works and only in a bull market.

2b. True or false: Bullish divergence (in the RSI indicator) fails to beat the market more often than it works.

3. True or false: Price drops faster than it rises.

From Chapter 6: Finding and Fixing What Is Wrong

1. True or false: The industry trend is more important than the market trend.

2. True or false: Holding a trade too long is worse than selling too early.

3. True or false: Sell in May and go away.

The answer to every statement is true.

Fundamental Analysis and Position Trading

This book explains and describes the test results of various fundamental factors such as book value, price-to-earnings ratio, and so on, to see how important they are to stock selection and performance.

The Fundamental Analysis Summary chapter provides tables of fundamental factors based on hold times of one, three, and five years that show which factor is most important to use for those anticipated hold times. The tables provide a handy reference for buy-and-hold investors or for other trading styles that wish to own a core portfolio of stocks based on fundamental analysis.

Chapters such as How to Double Your Money, Finding 10-Baggers, and Trading 10-Baggers put the fundamentals to work. The chapter titled Selling Buy-and-Hold helps solve the problem of when to sell long-term holdings.

Position Trading

The second part of Fundamental Analysis and Position Trading explores position trading. It introduces market timing to help remove the risk of buying and holding a stock for years.

Have you heard the phrase, Trade with the trend? How often does a stock follow the market higher or lower? The section in Chapter 19 titled, “What is Market Influence on Stocks?” provides the answer.

This part of the book looks at how chart patterns can help with position trading. It discloses the 10 most important factors that make chart patterns work and then blends them into a scoring system. That system can help you become a more profitable position trader when using chart patterns.

Six actual trades are discussed to show how position trading works and when it does not. Consider them as roadmaps that warn when the road is bumpy and when the market police are patrolling.

Swing and Day Trading

The last book of the series covers swing and day trading. The first portion of the book highlights swing trading techniques, explains how to use chart patterns to swing trade, swing selling, event patterns (common stock offerings, trading Dutch auction tender offers, earnings releases, rating changes, and so on), and other trading setups.

It tears apart a new tool called the chart pattern indicator. The indicator is not a timing tool, but a sentiment indicator that is great at calling major market turns.

Day Trading

Day trading reviews the basics including home office setup, cost of day trading, day trading chart patterns, and the opening range breakout. It discusses research into the major reversal times each day and what time of the day is most likely to set the day's high and low—valuable information to a day trader.

An entire chapter discusses the opening gap setup and why fading the gap is the best way to trade it. Another chapter discusses the opening range breakout setup and questions whether it works.

Ten horror stories from actual traders complete the series. They have been included to give you lasting nightmares.

INTENDED AUDIENCE

The three books in this series were written for people unfamiliar with the inner workings of the stock market, but will curl the toes of professionals, too.

Research is used to prove the ideas discussed, but is presented in an easy to understand and light-hearted manner. You will find the books to be as entertaining as they are informative and packed with moneymaking tips and ideas. Use the ideas presented here to hone your trading style and improve your success.

Whether you are a novice who has never purchased a stock but wants to, or a professional money manager who trades daily, these books are a necessary addition to any market enthusiast's bookshelf.

Acknowledgments

So many people are involved in bringing a manuscript to life, and I play a small role. To all of those workers at John Wiley & Sons, I say thanks for the help, especially to Evan Burton and Meg Freeborn. They ironed the wrinkles and made the trilogy presentable, even fashionable.

CHAPTER 1

How to Retire at 36

I was not born into a wealthy family with rich relatives who buy winning lottery tickets, nor did I invent website destinations that make billions when they go public, and yet I retired at 36. Here is how I did it.

The story began when I walked into a bank, hand-in-hand with my mom, and deposited my life's savings—just over $100—which was the minimum needed before they paid interest.