Trading the Measured Move E-Book

David Halsey

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

Seitenzahl: 301

Veröffentlichungsjahr: 2013

Beschreibung

A timely guide to profiting in markets dominated by high frequency trading and other computer driven strategies Strategies employing complex computer algorithms, and often utilizing high frequency trading tactics, have placed individual traders at a significant disadvantage in today's financial markets. It's been estimated that high-frequency traders--one form of computerized trading--accounts for more than half of each day's total equity market trades. In this environment, individual traders need to learn new techniques that can help them navigate modern markets and avoid being whipsawed by larger, institutional players. Trading the Measured Move offers a blueprint for profiting from the price waves created by computer-driven algorithmic and high-frequency trading strategies. The core of author David Halsey's approach is a novel application of Fibonnaci retracements, which he uses to set price targets and low-risk entry points. When properly applied, it allows traders to gauge market sentiment, recognize institutional participation at specific support and resistance levels, and differentiate between short-term and long-term trades at various price points in the market. * Provides guidance for individual traders who fear they can't compete in today's high-frequency dominated markets * Outlines specific trade set ups, including opening gap strategies, breakouts and failed breakout strategies, range trading strategies, and pivot trading strategies * Reveals how to escape institutional strategies designed to profit from slower-moving market participants Engaging and informative, Trading the Measured Move will provide you with a new perspective, and new strategies, to successfully navigate today's computer driven financial markets

Leseprobe

TRADING THEMEASURED MOVE

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TRADING THEMEASURED MOVE

A Path to Trading Success in a World of Algos and High-Frequency Trading

David M. Halsey

Cover image: © iStockPhoto.com/© Teekid Cover design: Paul McCarthy

Copyright © 2014 by John Wiley & Sons, Inc. All rights reserved.

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

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Library of Congress Cataloging-in-Publication Data:

Halsey, David M., 1977- Trading the measured move : a path to trading success in a world of algos and high frequency trading / David M. Halsey. pages cm. — (Wiley trading series) Includes index. ISBN 978-1-118-25183-6 (cloth); ISBN 978-1-118-28713-2 (ePDF); ISBN 978-1-118-28332-5 (ePub) 1. Investment analysis. 2. Algorithms. 3. Program trading (Securities) 4. Electronic trading of securities. I. Title. HG4529.H356 2014 332.64′20285—dc23

2013029212

I would like to dedicate this book to my dad, who taught me that excellence is a habit and that there is no such thing as luck. What others mistake as luck is where preparation meets opportunity.

CONTENTS

Cover

Half Title

Series Page

Title Page

Copyright Page

Dedication

Preface

Who This Book Is For and Why It's Important

Fibs Make the Moves

Acknowledgments

Chapter 1: Today's Trading Environment

Players on the Field

The Algo Brothers

Where Are You?

Chapter 2: Inside the Hidden Market

Deep Roots

Fibonacci Basics

Fibs Make the Moves

Why Do Fibs Work?

Fibs in the Real World

In Summary

Chapter 3: Drawing a Road Map

A Mountain Range of Price

Obstacles in the Road: Pivot Points

Navigating Trends

Long and Winding Roads

Chapter 4: More Tools for Trading Power

Watching the Clock (and the Calendar)

Tick Tock

The Tape and the DOM

The DOM (Depth of Market)

A Full Toolkit

Chapter 5: The 90 Percent Factor—Executing Your Trade

Priorities and Job One

What's the Risk, What's the Reward?

A Brief Pit Stop

Preparing the DOM

Crossing the Starting Line

Running Off the Road

When Multiple Contracts Just Aren't Possible

Why 90 Percent?

Chapter 6: Three Types of Trade Setups

The Traditional 50 Percent Measured Move

The Extension 50 Percent Measured Move

The 61.8 Percent Failure

Why Is This Important to Your Trading?

Chapter 7: Using Multiple Time Frames to Trade

Time Frames and Russian Dolls

The Path of Least Resistance

Trading the Trend

What Time Frame Should We Look At?

Why Is This Important to Your Trading?

Chapter 8: Three Entry Strategies for Retracements

The Goal

The Three Entry Strategies

The Progression of Entries

Why Is This Important to Your Trading?

Chapter 9: The Seasonality of Markets and the Best Times to Trade

The Big Picture

A Money Manager's Year

The Days

The Hours (Best and Worst Times to Trade)

The Worst Times to Trade

The Typical Money Manager

Why Is This Important to Your Trading?

Chapter 10: Tools for the NYSE

Lagging versus Leading Indicators

Tools for the NYSE

Using All the Tools Together

Why Is This Important to Your Trading?

Chapter 11: Tick Extremes and Divergences

The Types of Tick Extremes

Tick Divergences

Why Is This Important to Your Trading?

Chapter 12: Profiting from Gap Fills

What Is a Gap?

The Types of Gap Fill Scenarios

Gap Fills to Avoid

Gap Fill Percentages

The Gap Fill Workflow and Filter

Entries

When Gaps Don't Fill

What to Do?

Why Is This Important to Your Trading?

Chapter 13: How to Manage Positions and Take Profits

The Rule for Measured Moves

The Distance Formula

Trailing a Series of Measured Moves

After the Confirmation of Trend

Using the –23 Percent Profit Target: Take Profit on the Time Frame You Entered the Trade

Why Is This Important to Your Trading?

Chapter 14: Risk Management (Advanced Trade Management)

Bob the Trader

Curtis the Contractor

Risk per Trade

How Many Futures Contracts Should I Trade?

Stop Placement

The Free Trade

The Reduced-Risk Trade

Why Scale Out?

Pick an Instrument and Focus on It

Trading the News Is Gambling

Why Is This Important to Your Trading?

Chapter 15: The Inner Trader

Mentality

Money Management

Emotions

How Long Does It Take for a New Trader to Trade Well?

Attitude

Trading Well versus Trading for Profit and Emotional Capital

The Phases of Measured Moves

The Series of Measured Moves

Basic Traditional Measured Moves

The Progression of Measured Moves

Why Is This Important to Your Trading?

Chapter 16: The Trading Plan

The Four Legs of a Trading Strategy

Why Trading Rules

General Trading Account Rules

Gap Fill Trading Rules

American (NYSE) Session Trading Rules

European (Euro) Session Trading Rules

Setups

A Trading Journal

Why Is This Important to Your Trading?

Bringing It all Together

About the Author

Index

PREFACE

In today's financial markets, each time a retail trader places a stock, options, or futures trade, he or she enters a world dominated by massive amounts of capital allocated by algorithms designed by brilliant mathematical minds and running on the ultra-fast computers of the world's largest financial institutions. Through years of research and trading experience I have discovered a means by which an individual retail trader can face that daunting competition and win. This book provides you with both the broad background and the necessary details of how to trade courageously and profitably in today's markets.

■ Who This Book Is For and Why It's Important

Traders at all levels of experience will benefit from reading this book. Advanced traders will be familiar with most of the book's terminology but most likely will not be familiar with its new and unique approach to the use of Fibonacci retracements within a series of measured moves or with the structure of nested measured moves across multiple time frames. For beginning traders, a glossary provides definitions and basic information regarding all technical terms used in the book. Armed with this information, beginners will be able to understand and implement the methodology detailed in the book's body. Intermediate traders who might have floundered in today's market while testing indicator after indicator and method after method will find relief in this book's clear, precise, and proven methodology. All traders will benefit from sidebars that tell stories of my personal experiences that lead to specific discoveries and aha moments in the development of this methodology.

Algorithmic trading strategies based on sophisticated quantitative analysis and often employing high frequency trading (HFT) tactics have in recent years given enormous market advantages to the largest financial institutions in the world. Put simply, in the world of trading and investing, the quants, as they are known, have changed the rules for the foreseeable future and have placed the individual retail trader at an unprecedented disadvantage—that is, unless that trader learns a new way of trading that strives to ride the waves created by the quants' trading activity with confidence and to capture consistent profits along the way. This book offers the individual trader a blueprint for creating such a trading plan built on a dynamic framework of fundamental principles flexible enough to support his or her own trading personality.

■ Fibs Make the Moves

Through years of exhaustive research combined with trial-and-error ­trading on the playing field of futures, options, and equities, I have identified an undiscovered set of trading rules commonly used by the quants. Armed with this knowledge, I developed a unique and powerful methodology for successfully navigating this new and previously uncharted trading environment. At the core of this methodology is the measured move, as described by ­Fibonnaci retracements. Put simply, Fibs make the moves. The reason that this is so is that the trading activity of the quants makes it so. The methodology here offers a means for the retail trader to ride the coattails of massive amounts of institutional money and to make substantial profits along the way.

My trading methodology surrounds the concept of Fibonnaci-based measured moves with a kit of tools specialized for each trading instrument. Through my research I have unveiled the personalities of a wide range of trading instruments, each created by the movement of substantial amounts of institutional capital each trading day. In order for a retail trader to profit from riding the coattails of this capital, the trader must know which market internals the institutional algorithms are tracking. For example, when trading the ES futures contract based on the Standard & Poor's (S&P) 500 stock index, the quants habitually buy or sell based not on Fibonnaci levels alone but also based on New York Stock Exchange (NYSE) tick, particularly at the extremities of its range. The Bank index, which tracks the Nasdaq's largest financial components, is critically useful as a gauge of overall market sentiment. Finally, the use of tick charts (not to be confused with NYSE tick) and the fine art of tape reading allow a trader to make accurate judgments on price movement for specific instruments based on institutional participation or lack thereof.

This book makes the case that in today's new trading environment of institutional algorithms and high-frequency trading the traditional lagging indicators such as moving average convergence/divergence (MACD) and stochastics used by most retail traders do not work. The quants don't use them, so retail traders shouldn't use them either. Instead, retail traders who read this book should learn to use what the quants use—Fibonnaci-based measured moves and market internals specific to each trading instrument. Armed with a solid understanding of each along with a fully prepared, attentive, and realistic psychological inner state, the retail trader can enter today's trading environment as a successful and profitable participant.

ACKNOWLEDGMENTS

I would like to thank my wife for helping me along the way in the writing of this book. Without her, it would not have been possible. I would also like to thank my editor Jennifer MacDonald for putting up with me during the editing process and her amazing patience. Without her accountability and motivation, the book would not be possible.

CHAPTER 1

Today's Trading Environment

Descent of the Pit and Ascent of the Screen

In the opening moments of Floored, James Allen Smith's incisive documentary about the decline of Chicago's trading pits, two telling statistics flash across the screen: