9–270, 316Entry target, 9, 35Equal and opposite pattern, 201–203Equity loss, 281–282Equity markets, 65, 73, 152EUR/USD, 210Euro (EUR), 18, 33, 61, 64–65, 74, 98,143, 208, 210, 231, 276, 288, 299,301Euro Currency Trust (FXE), 37, 47Euro futures contract, 66–67European markets, 74–75, 129Evening doji star, 140, 192, 243Evening star formations, 184, 197Exchange traded funds (ETFs)advantages/benefits of, 34, 46characteristics of, 13–14, 16, 286commodity, 38–43, 53currency, 37–38defined, 33development of, 34–36diamonds, 149hot sectors, 36–37hot stocks, 36–37, 43–46Exhaustion bottom, 190, 247Exit points, see Exit strategy; Sellsignalsguidelines for, 270–273importance of, 269–270Exit strategy, 6, 9, 14, 35, 58, 97, 124,127, 138–139, 154, 216, 230, 263,316. See also Sell signalsExpectations, 10Exponential average, 103Exponential moving averages, 103
Extreme volatility, 163Exxon, 226Fair value, 162False bottom, 100, 106, 119False breakdowns, 203False breakouts, 202False high, 119False signals, 15, 205FAO Schwartz, 19Fast stochastics, 95, 99, 220Fear, 6, 10, 63, 123, 187, 282, 310Federal deficit, 2Federal funds contracts, 30Federal Reserve, 2–3, 35, 51–52, 62Fees, forex markets, 63Fiber optics, 20Fibonacci corrections/extensions, 75Fibonacci levels, 122Fifteen-minute chart, 150, 153,172–173, 224, 275Fifteen-minute time periods, 178, 214Fight the tape, 85Filtering, 185, 313Fiscal policy, 62Fishers, Mark, 214Five-minute charts, 140, 157, 184–185,233, 239, 247–248, 250–251Five-minute moving average pivotpoint, 169Five-minute time periods, 178, 214Flag formations, 81, 231–232, 236Flexi accounts, 63Flight to quality, 152Forecasting, 80Foreign currencies, 14, 17–18, 153. Seealso Foreign exchange(FX/Forex) market specificforeign currenciesForeign exchange (FX/Forex) marketbenefits of, 59, 63–64best time to trade, 295characteristics of, 16–17, 59, 103,169, 203, 273classification of, 70–71futures vs., 66–70
344Foreign exchange (FX/Forex) market(continued)insider trading, 70–72leverage, 59–60long position, 60macroeconomic factors, 73–75margin, 59–60market events, influential, 72–73pivot point analysis, 122reversals, 87setups, 214short selling, 60–63spot forex markets, 65spreads, 64stocks compared with, 65–66trading system applications, 299–306triggers, 214volume and, 78–79Fractal relationships, 223–224Fry pan pattern, 193Full-sized positions, forex markets, 63Fundamental analysis, 42, 55–56, 60,66, 184Fundamental events, impact of, 54–55Futures/futures contract, see Futuresmarketcharacteristics of, 14, 16–17, 42, 103,148, 153defined, 47Forex market compared with, 66–70Futures marketcase illustration, 53characteristics of, 46–47, 58, 64, 94,169, 203, 207, 273leverage, 59pivot point analysis, 130stock index futures, 47–50tandem trading techniques, 50–53triggers, 219–223, 236–240FX currency futures contract, 38–39fxtriggers.com, 315Galton, Frances, 12Gann fan angles, 122Gap(s)band play, 308
INDEX
defined, 188doji formation, 192–193, 196Gauge in sensitivity, 99GBP/USD, 210General Electric, 16Genesis Software, 169, 178, 204, 231,288, 295, 297, 311Geopolitical events, 61, 72–74, 153, 204German market, 177Globalization, economic impact of,1–2, 57–58GLOBEX, 291Goal-setting, importance of, 9Going long, 14, 97, 138, 167, 219, 248,308. See also Long positionGoing short, 97. See also Shortposition; Short sales; ShortsellingGoldcontracts, 237ETF, 40, 42prices, 1–3, 33, 51–52, 153, 205–206Good faith deposit, 47Google, 29, 244Gravestone formation, 191Great Britain, see Bank of England;British poundGreed, 6, 63, 123, 187, 282, 310Green candle, 189, 246Greenspan, Alan, 2, 51Half-position scale-out strategy,232–234, 274, 277, 314Hammer formation, see Jackhammercharacteristics of, 145, 166, 169,171–172, 193–195, 205, 210–211,250, 270–271, 314inverted, 191, 195Hanging man formation, 191–192,194Haramicrosses, 184doji, 185doji crosses, 192, 230formation, 185, 193, 197–198Hard stop order, 232Heating oil, 52
Index
Hedge funds, 58, 91Hedging, 4, 23, 34, 36, 46Hidden support/resistance, 226, 241High(s)implications of, 14, 78, 80–82, 84,123, 126, 138, 159–160, 167,172–174, 177, 184–185, 188–189,192–193, 195, 201, 203, 207–209,217, 219, 223, 225–228, 230, 232,235, 251, 254, 274prediction of, 132stop order placement, 263–265High close doji (HCD)characteristics of, 17, 97–98, 106,109, 144, 157, 213, 215–216,254–255, 259, 285, 290, 314fractal relationships, 223–225futures market triggers, 219–223spot forex triggers, 216–219stock, intraday triggers on, 225–229trigger, 48High-frequency formations, 193High-probability setup, 312High-risk, high reward stockinvestments, 29Hirsch, Jeff, 282Histograms, 104–109Historical data, 279, 282–285Historical performance, 2–3Holding company depositary receipt(HOLDR), 16, 36Holding periods, 281, 290HOLDRs, 34, 39, 46–47Homeland Investment Act (HIA), 61Home office deductions, 7“Hook” buy/sell signal, 96–97Hot stocks, 36–37, 43–46Hourly charts, 183, 188Housing bubble, 141How I Made One Million Dollars LastYear Trading Commodities(Williams), 123How to Make Money in Commodities(Keltner), 123Hurricane Katrina/Rita/Wilma, 53–55,57
345IBM, 83, 227Impulsive trades, 309–310. See alsoEmotional controlIn-and-out players, 64In-the-money call options, 46Indecision, 184, 192. See alsoDecision-making processIndex futures, 13Indicators, defined, 15. See alsospecific types of indicatorsIndividual investors, 46, 63Inflation, 3, 52–53, 73, 153Inflationary pressure, 2Information gathering, 270Information overload, 126, 131–140Information resources, types of, 18, 75,178, 185Initial margin requirements, 240Initial public offerings (IPOs), 29–30Insider trading, 58, 70–72Intel, 43–45Interbank market, 64Intercommodity relationships, 152Interdependent markets, 65. See alsoIntermarket relationshipsInterest rates, 2–3, 35, 51, 62, 65,72–73, 152–153Intermarket Analysis: Profiting fromGlobal Market Relationships(Murphy), 50Intermarket relationships, 2, 46, 48,51Intermediate-term traders/trading, 88,263International Monetary Market (IMM),66Internet sector, 36Intraday charts, 60Intraday trades/trading, 10, 223–225,231, 247Inventory, commodity market and,54–56Inversion effect, 2Inverted hammer, 191, 195Investment vehicles, overview of,16–18Investment Company Act of 1940, 42
346iSharescharacteristics of, 40Goldman Sachs Semiconductor(IGW), 43–45Silver Trust (SLV), 42Island top formation, 197Jackhammercharacteristics of, 109, 118, 172, 213,246, 252–255, 260trading rules, 246–250JapanBank of Japan, 72Japanese yen (JPY), 18, 72, 74,147–148, 166, 172,1 77, 208, 210,233market conditions, 72–73JDS Uniphase, 20Jobs, Steve, 22%K, 95–99, 101–102, 218, 229, 252, 280,309Kaufman, Perry, 179, 181Keitner, Chester W., 123Kilman, Peter, 204, 291Kmart, 19Lagging indicators, 104, 160, 220,282–283Lane, Carrie, 181Lane, George C., 3, 94–95, 181Large-money traders, 192Last conditional change, 263Latin America, 58Lean hogs, 52Lefevre, Edwin, 6Length of candle, 190Let’s make a deal strategy, 15–16,22–24Leverage, 10, 42, 58–60, 63, 71, 300Liquidation, 171, 220, 272, 278Liquidity, 37, 248Liquid markets, 169Live cattle, 52Livermore, Jesse, 6, 10, 123London Bullion Market Association, 42Long-legged doji, 192
INDEX
Long position(s), 25, 42, 60, 63, 71, 98,104, 144, 146, 150, 216, 223–224,243, 246, 248Long-term investmentscharacteristics of, 28–31short-term trading compared with,31–33Long-term traders, 8, 66, 77, 127Long-term trends, 91Losing traders, characteristics of,11–12, 307Losing trades, 7, 10, 15, 79, 124Lots, 140, 308Low(s)implications of, 78, 80, 82, 84, 103,126, 138–139, 155, 159–160, 167,172–174, 177, 184, 188–189,192–193, 201, 203–204, 207–209,219, 223, 226–228, 232, 235, 239,248, 251, 254, 274, 276prediction of, 132stop order placement, 263–265Low close doji (LCD)case illustration, 241characteristics of, 17, 101, 109, 213,230, 254, 259, 264, 275, 290futures markets triggers, 236–240spot forex triggers, 231–236stock triggers, 241–242trading rules, 230–231Lucent Technologies, Inc., 19, 28Macroeconomics, 73–75, 204Management fees, 34Management quality, 21Margin, see Initial margin requirementaccount, 29characteristics of, 38, 59–60, 97, 139,301requirement, 47–48, 300system, 47Market analysis, 48Market capitalization, 42Market conditionsdetermination of, 77–91flow of, 80impact of, 9, 13, 68, 75, 254–255
Index
indicators of, 125–126recognition of, 78significance of, 136–137trend analysis, 82Market direction number, 161Market entry, 154, 175, 177. See alsoBuy signals; Entry pointMarket events, influential, 72–73Market performance theories, 5–6Market rallies, 2, 9, 21, 88Market reversals, 143, 154, 274. Seealso ReversalsMarket trends, 9, 68. See Downtrends;UptrendsMarket value, 15, 48Market weakness, 263, 301Markowitz, Harry, 12Marvell, 44Maxim Integrated Products, 44Mean, 88, 161Mental stops, 262Mercedes Benz, 61Microsoft, Inc., 20–21Microsoft Excel, 161, 231Mindset, importance of, 6, 310, 315Miniaccounts, 63Mini-Dow, 164–165, 172, 178, 205, 207,222, 239, 247–248, 271, 273, 288Mini-gold contract, 219Mini-Russell Stock Index futures, 139Mini-stock index futures, 77, 139Missed opportunities, 123Modernization Act, 64Momentumbullish, 105, 151, 235, 243changes in, see Momentum changesdeclining, 231implications of, 95, 104, 107, 217,231, 248, 271, 273, 282shift in, 97, 169, 205sources of, 97techniques, 46trading, 8trends and, 159Momentum changesApple Computer case illustration,113–114
347blow-off tops, 114bullish convergence, 117–118indicators, 115–116overbought market, 112–113questions for trader to ask, 118–120volume, 111–112, 114–116Monetary policy, 62Money flow, 57–58Money managementguidelines for, 301importance of, 11, 293–294Monsanto, 48–49Monthly charts, 60, 178, 183, 185, 188Monthly pivot points, 141, 145,150–151, 153, 156Morning doji star, 97, 184, 192, 197,215, 233Morning star pattern, 196Morris, Greg, 188Motorola, 44Moving averagecharacteristics of, 75, 88–90, 104,122, 142, 145, 183, 276, 301, 314forex market, 216–217risk management and, 259sample analysis, 280, 286simple, 161–166trading triggers, 226–227, 236,239–240, 248, 254Moving averageconvergence/divergence(MACD), 94, 103–107, 117, 122,218, 220, 229, 231, 247, 251, 281,283, 286–288, 294Multi-conglomerate corporations, 61Multiple positions, 220Murphy, John J., 48, 50Mutual funds, 13, 16, 29, 34, 40Nasdaq, 130, 222Nasdaq 100, 16, 34, 285National Futures Association, 64Nationalfutures.com, 178, 180–181,185, 204, 231, 242, 291Natural gas, 52, 57Negative assigned candle, 195, 234, 280Negative crosses, 217
348Negative momentum, 236Net asset value (NAV), 34Neutral market, 82, 89, 169, 254Neutral trend, 79–80News events, economic impact of, 132,248, 301, 306Newmont Mining, 42–43Newton’s law, 192New Trading Systems and Methods(Kaufman), 181New York Bank settlement, 290New York Board of Trade, 66–67New York Mercantile Exchange(NYMEX), 48, 291New York Stock Exchange (NYSE),37–38Nickel, 52Noncommercial forex trades, 71, 72Novice traders, 14OIH, 38–39Online trading, active, 204OOPS method, 214Open, candle formations, 189–190Open Close, 183Open-ended mutual funds, 42Open hammer candle pattern, 225Open of market, 14, 78, 93, 184Options, 3, 13, 15–17, 23, 42, 48, 119,149, 308–309Orange juice, 52–55, 57Order-entry platforms, forex markets,64Out-of-the-money call options, 23Overbought condition/overboughtmarket, 55, 89, 91, 95, 103,112–113, 118–119, 169, 183, 254Overleveraged investments, 48Overpriced stock, 43Over-the-counter (OTC) foreignexchange, 18, 65Oversold condition/market, 90–91, 103,118–119, 126, 183, 254, 308Overtrading, 175Overvalued condition, 89Overvalued stock, 43
INDEX
Pairs trading, 18, 46, 63Partial positions, 272, 308Pattern recognition, 188PayPal, 63Pennants, 81. See also Flag formationsPension plans, 148Percentage in points (PIP), 64, 66, 203,215, 232, 236, 261, 264, 301Personality profile, 16Pharmaceutical HOLDRs, 46PIP spread, 64, 66Pivot pointanalysis, see Pivot point analysisdefined, 124entry and exit strategies, 277–278integration of, 275–276setups and triggers, 242–245Pivot point analysisapplications of, 1benefits of, 179calculations, 182candle patterns combined with,137–140characteristics of, 3, 13, 35, 46, 60,75, 88–89, 93–94, 96–97,121–122, 188confluence, 141defined, 124, 126filtering, 169, 313getting started, 177–185information overload, 131–140leading indicator, 124–127long-term, 214, 236mathematical calculations, 123moving average system, 159–185prices near pivot area, 128–129purpose of, 182–183range, 129–130sample, 285–288stock investments, 241support and resistance, 105,121–125, 127–129, 182–183, 248time frame analysis, multiple,129–131trading triggers, 229, 254–255Pivot Point Calculator, 231, 242, 312
Index
Political events, economic impact of,1–2, 61, 72, 74, 153Positionbalancing, 75number of, 11size of, 9, 308Position traders/trading, 15, 17, 34,103, 165, 281, 285Positive assigned candle, 195, 246–247,280Power traders, 130Precious metals, 12, 42Predictive indicators, 242–245Pregame setup, 254Priceappreciation, 148, 159, 163corrections, 43gaps, see Price gapsmomentum, 44reversal, 100, 107, 142, 148, 157Price gapsfilling in, 89–91sources of, 88, 290Price, Richard, 210Price-to-earnings (P/E) ratio, 24, 28Private investors, 8, 40Profitability, 30Profitable traders, 14Profit margin, 21, 43Profit objectives, 16, 97, 156Profit-taking, 146, 265Profit target, identification of, 169, 263Proprietary setups, 254Protective buy stop, 261Pullbacks, 88, 132Put options, 16, 119, 149QQQs, 34, 285Quotes, 64R-1 level, trading triggers, 139, 148,182, 223, 225, 231, 276R-2 level, trading triggers, 139–140,149, 178, 183, 241R-3 level, trading triggers, 236Rambus, Inc., 20–21
349Random Walk theory, 5–6, 81Range, 130, 132Rate of return, 36Real estate investments, 12Real estate investment trusts (REITs)characteristics of, 13ETF, 35Real-time trading volume, 193RealTick, 103, 231Recession, 2Red candles, 190Red Hat, Inc., 20–21REFCO, 17–18Regression to the mean, 88Regular stop, 247Rejectionof price, 68of support and resistance level, 183Relative strength, 189Remarkable Story of Risk, The(Bernstein), 12Reminiscences of a Stock Operator(Lefevre), 6Research, importance of, 23–24Resistance level, pivot point analysis,174–175. See also Pivot pointanalysis, support and resistanceResistance line, 82, 84Retracement, 132, 157Reuters/Jeffries CRB (CommodityResearch Bureau), 52, 57Reversals, 61, 68–69, 80, 85, 87, 94, 100,106, 119–120, 126, 142–143,148–149, 154, 157, 159, 163–164,173, 183–184, 187, 190–191,195–196, 202, 215, 233, 251,272–274, 300, 309Rickshaw doji, 148, 192Rising wedges, 81Risk aversion, 58Risk capital, 10Risk managementimportance of, 6, 11–12, 24, 32, 51,85, 184, 255, 301intraday, 303stop-loss system, 257
350Risk management (continued)stop orders, 258–267trading rules, 257–258Risk per trade, 11Risk/reward analysis, 22–23, 29, 154,263, 285, 294, 310Risk tolerance, 16Robustness, 98Rollover