Secrets of the Underground Trader : Advanced Methods for Short-Term and Swing Trading Any Financial Market

by Yu, Jea

• ISBN13: 9780071417372
• ISBN10: 0071417370
• Edition: 1st
• Format: Hardcover
• Copyright: 2003-08-18
• Publisher: McGraw-Hill

Summary

Swing trading tips and techniques from Undergroundtrader.com--voted Forbes's "Best of the Web" for 2000, 2001, and 2002 Short-term and swing trading has become the strategy of choice for active, aggressive traders and investors. Secrets of the Undergroundtrader details the advanced methods today's most successful traders live by, from stochastics and candlesticks to 3-price breaks, volatility signals, and more. Each of these methods is tested daily in the trenches and is designed to allow traders to more accurately time entry and exit points in bull, bear, and nontrending markets. The authors open by explaining how the methods work and then provide step-by-step directions so traders can: Learn and become comfortable with the method Implement the method in the heat of trading Manage the method both mentally and physically

Author Biography

Jea Yu is cofounder and principal analyst for Undergroundtrader.com, one of today's most-viewed trading websites, and a creator of top-selling trading videos.

Russell Lockhart provides realtime analysis for Undergroundtrader.com and has been on the faculty of UCLA and several other universities.

Table of Contents

Preface	ix
PART 1. DISCRETIONARY METHODS
Chapter 1 Deriving the Tools	3	(22)
A Trader's Discovery Process-Find the Need and Apply the Fix	5	(9)
Stochastics Charts	14	(1)
Moving Averages Charts	15	(4)
200-Period Simple Moving Average	16	(1)
3-Period Shifted Exponential Moving Average	17	(2)
1-Minute Stochastics Divergent Situations and Wide-Channel Consolidations	19	(1)
Nasdaq 100 E-minis Charts (Noodles)	19	(2)
Pivot Points	21	(1)
Sox.x Index and Vix.x	22	(1)
The Complete Layout	22	(3)
Chapter 2 Trend Channels and Breakouts	25	(18)
Consolidations	25	(1)
Uptrends and Downtrends	26	(1)
Pups and Mini Pups	27	(2)
Anatomy of a Living Trend	29	(3)
Fades	32	(1)
3.5-Strike Trend Reversals	33	(2)
Short Squeezes	35	(2)
Overshoots and Backfills	37	(2)
Ping-Pong Range	39	(1)
2.5 De Facto Levels	39	(1)
Sticky 5s Levels	40	(1)
Overlapping Support and Resistance Levels	41	(2)
Chapter 3 Nuances of the Longer Time Frames	43	(12)
Nuances of the 13-Minute Charts	44	(3)
Mini Pups and Pups on the 13-Minute Charts	47	(1)
Nuances of the Mini Pups	48	(1)
Nuances of the 60-Minute Charts	49	(1)
Mini Pups and Pups on the 60-Minute Charts	50	(2)
Developing the Mindset for the Longer Time Frames	52	(1)
The Best Method for Wider Time Frames	53	(2)
Chapter 4 Prime and Fractured Trade Setups	55	(14)
Prime Setups	56	(10)
Three-Lane Highway	56	(1)
Perfect Storm	57	(2)
Scalper's Perfect Storm	59	(1)
Fractured Setups	60	(2)
Threading the Noodles	62	(1)
Mini Pup versus Pup Make or Break	63	(1)
The Lead and the Trigger	64	(1)
Tightening the Lanes	65	(1)
Limiting Red Trades	66	(1)
Rule 1: Don't Fight the 13-Minute Stochastics and the Trend	66	(1)
Rule 2: Don't Play in Light Volume	66	(1)
Rule 3: Don't Play Tight Channels	66	(1)
Rule 4: Don't Chase Extreme Stochastics Bands	67	(1)
Rule 5: Don't Fight the Pivots or Overlapping Support or Resistance Levels	67	(1)
Deriving Premises	67	(2)
Chapter 5 The Moody Market Day	69	(20)
Morning Preparation to Find Candidates and Setups	69	(4)
Gauging Premarket Noodles	70	(2)
Economic Reports	72	(1)
FOMC Rate Decisions	72	(1)
Playing the Open	73	(3)
Mini Pup Short Squeeze on the Open	75	(1)
Gap Openings	75	(1)
9:45 a.m. Transparency	76	(1)
First Mood-Shift Period: 10:30 a.m.	77	(1)
The Dead Zone: 11 a.m. to 1 p.m.	78	(1)
Second Mood-Shift Period: 1:30 p.m.	79	(2)
Minor Mood-Shift Periods	81	(1)
Light-Volume Period and Markets	81	(2)
The Last Hour	83	(1)
Postmarker	84	(1)
Intraday Scanning with Exchange-Traded Funds	84	(2)
Commercial Scanning Products	86	(1)
Nightly Research	86	(3)
Chapter 6 The Basket Trading Approach: Building the Foundation	89	(6)
Work Backwards-The Most Important Step	89	(2)
Selecting a Basket Stock	91	(1)
Paper Trading	91	(1)
Keep a Journal	92	(1)
Stops	93	(2)
Chapter 7 The Transition to Cash	95	(12)
How to Make the Transition from Paper to Cash	95	(1)
Environment Dictates the Effective Style	96	(5)
Scalper	97	(1)
Range/Swing Trader: Casting a Net	98	(2)
Combo Player: The Double Threat	100	(1)
The Art of Paring	101	(2)
Making the Transition to Larger Numbers of Shares	103	(1)
Steps and Make-or-Break Situations	104	(3)
Chapter 8 Making the Trade	107	(20)
Preparation	107	(6)
Deriving High-Probability Setups	110	(2)
Newbie Mistakes	112	(1)
Pulling the Trigger	113	(4)
Timing the Entry	113	(3)
Proper Allocation of Shares to Setup and Risk/Reward	116	(1)
Managing the Trade	117	(6)
Riding the Trade	119	(1)
Paring the Trade	120	(2)
Exiting the Trade	122	(1)
Prozac Moments and Noise	123	(1)
Market Laggards	123	(4)
Chapter 9 Playing the Countertrend Reversal	127	(12)
Early Exhaustion Reversal Play	129	(2)
Confirmed Trend Reversal Play	131	(1)
Overlapping Support and Resistance Levels for Counterplays	131	(1)
Caution!	132	(1)
Exceptional Gaps	133	(1)
Reversal Candlestick Patterns	134	(3)
Shooting Star Topping Candlestick	135	(1)
Doji Candlestick Reversal Pattern	135	(1)
Hammer	136	(1)
Painting the Charts-Watch Out!	137	(2)
Chapter 10 The Mental Game	139	(12)
Styles Make Fights	139	(2)
Game of Probability	141	(1)
Two Common Causes of Failure	142	(1)
Consistency	142	(1)
Making Your Own Luck	143	(1)
Analyzing and Recovering from Slumps and Drawdowns	144	(2)
The Ultimate Goal	146	(2)
Premediate the Time Frames	148	(1)
Find a Hobby	149	(2)
Chapter 11 Putting It All Together: A Sample Week of Trades	151	(20)
Day 1	151	(5)
Premarker Reading	151	(1)
Trades	152	(2)
Stats	154	(2)
Day 2	156	(3)
Premarker Reading	156	(1)
Trades	156	(3)
Stats	159	(1)
Day 3	159	(3)
Premarker Reading	159	(1)
Morning Trades	159	(3)
Stats	162	(1)
Day 4	162	(4)
Premarker Reading	162	(1)
Trades	163	(2)
Stats	165	(1)
Day 5	166	(5)
Premarker Reading	166	(1)
Morning Trades	166	(2)
Stats	168	(3)
PART 2. SYSTEMATIC METHODS
Chapter 12 The Need for Method	171	(28)
The Risk of Ruin	172	(6)
Desire to Make Money Grow	178	(1)
Multiplication and the Power of Compounding	179	(7)
The Chimera of Long-Term Investing	186	(2)
Basic Principles of Market Behavior	188	(11)
Chapter 13 Requirements of Method	199	(20)
Foundational Assumptions	199	(1)
Rules for Assessing Methods	200	(3)
Chaos, Complexity, and Curiosity	203	(5)
The Fundamental Rule	208	(4)
Implementing the Fundamental Rule	212	(3)
Dynamic Adaptation to Change: Synchrony and Harmony	215	(2)
Personality, Method, and the Shadow of Failure	217	(2)
Chapter 14 Building the Fundamental Methods	219	(52)
The Importance of Candlestick Charting	220	(3)
Reading a Chart	223	(2)
The Principle of Exhaustion	225	(1)
The Principle of Market Structure	225	(6)
Market Structure Bull and Bear Lines	229	(1)
Market Structure Events	230	(1)
Analysis of Candle Types and Patterns	231	(14)
Doji Candle	233	(2)
The Engulfing Candle	235	(1)
Morning Star Candle Pattern	236	(1)
Market Structure Trigger	237	(8)
The Concept of Target	245	(5)
A Rule-of-Three Trend-Determining Method	246	(1)
Three-Price Break	247	(3)
Market Structure and the Concept of Wave	250	(8)
The Concept of Wave Growth	252	(1)
Factors in Wave Growth	253	(4)
The Concept of Wave Failure	257	(1)
The Concept of Time Limit on Wave Growth	258	(5)
The Fibonacci Number Series and the Growth Spiral	259	(4)
Application of Fibonacci Targets and Wave Registration	263	(3)
Dynamic Elliott Wave Analysis	266	(5)
Chapter 15 Advanced Methods for the Trader's Toolbox	271	(58)
Deep Structure	272	(1)
Extreme Fibonacci Bollinger Bands and Moving Average Shifts	273	(5)
Volatility Signals	278	(2)
Natural Squares and Harmonics of Range	280	(7)
Natural Squares	280	(2)
Harmonics of Range	282	(5)
The Projective Power of Market Structure	287	(4)
The Concept of Price/Time	291	(4)
Price/Time and Symmetry	294	(1)
The Owl Method: Consistent Squaring of Price and Time	295	(3)
External Market Clocks	298	(3)
Generalizing the Three-Price Break	301	(3)
Three-Price Break Methods	301	(1)
Three-Price Break and Time	302	(1)
Three-Price Break and Variables Other than the Close	303	(1)
The Market's Internal Sentiment Indicators	304	(2)
The Trade Filter	306	(1)
The Importance of the Trading Journal	307	(2)
The Importance of Multiple Time Frames	309	(1)
Assessing Risk, Self-Performance, and Market Behavior	309	(2)
The Value of Real-Time Analysis and Education	311	(1)
Self-Awareness Methods	312	(2)
The Market Candle by Candle	314	(10)
What's in Store for the Future?	324	(3)
Directions for Further Study	327	(2)
Appendix A E-minis: Taking Advantage of the New Markets by Luke of Undergroundtrader	329	(14)
Appendix B Trading the Soybean Markets by John Allen	343	(20)
Index	363