After five or six days I find my patience starts to wane. I’m usuallyout by the seventh day unless I’m fortunate enough to be in a strongtrend. At this point, I'll continue to trail a stop. 
CHAPTER 1 7
READY, SET, WAIT!
This manual is the culmination of over 10 years of research, market analy-sis and trading. I strongly believe that I have included everything that aswing trader needs in order to take on the markets and be successful. This isnot to say that you should run out and try all of the methods and conceptsimmediately. Ease into it, especially if you are fairly new to trading. Studyeach pattern and setup in this book. If it makes sense to you, research it and.find historical setups. Which ones worked? Which ones didn’t? What werethe market dynamics at that time? What were the sector dynamics? Is therea modification to the setup that would lend itself more to your style of trad-ing? Are there money-management techniques you could implement thatwould allow you to control risk or capture larger profits? Once you've doneyour homework, then paper trade method(s), Be a realist and carefully doc-ument your records—timestamp your “trades” or use a tracking service.
After you have completed the above due diligence, make sure you gothrough one final checklist before jumping into the markets:
What is the setup?Where is your entry?Where is your protective stop?
Where will you look to scale out?REE Tene rere ee tele eter aie208 Chapter 17
What is the overall market doing?Are there any systems that are triggering?Is there momentum?Are there any setups that are triggering?What is the sector doing?Is there momentum?Are there any setups that are triggering?Are you focused, free of distractions and of sound body and mind?
After you have answered all of the above, you should be ready to facethe markets. 
 
CHAPTER 1 8
CLOSING THOUGHTS
AsI complete this manual in late 2000, many of the biggest and best namesassociated with a “buy and hold” portfolio have been decimated, Home De-pot, Intel, Microsoft and America Online are down over 50% from theirhighs; Yahoo! and AT&T have lost over 60% of their value since the begin-ning of the year; Lucent (LU) has lost over 70% of its value during the sameperiod and Apple Computer is 80% off its highs. The list goes on and on.
My method of swing trading allows you to a) participate in the bestnames at the most opportune times and b) when wrong, avoid beingcaught in debacles such as those listed above.
Best of luck with your trading!
Dave Landry
PS. Protective stops on every trade!
 
209  
PURSE Ras raey AB 9588
   
PER
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SSCS:
  
 
 
 
 
 
 
 
 
 
 
 
 
  
APPENDIX
FORMULAS
While the following formula for historical volatility may be of use to a mathema-tician, you should ideally have a software program calculate this for you.
CALCULATING HISTORICAL VOLATILITY
Let Length = length of volatility to be calculatedand In = natural logarithm
Historical Volatilityength) = standard deviation(In(close/yesterday’sclose),length) + 100 * square root (256).In English:1. Divide today’s close by yesterday’s close.2. Take the natural log of #1.
3. Take the standard deviation of #2 for length desired (the number oftrading days, ie. 50)4, Multiply #3 by 100.
5. Multiply #4 by the square root of the number of trading days in 1 year(around 256).
 
211 
212 Appendix
GLOSSARY
The following terms are used throughout this manual. Even if you are amore advanced trader, you might want to skim this chapter to see howthey are defined for purposes of this manual.
Average Directional Movement Index {ADX)—Developed by WellesWilder, this formula is used to measure the strength of a market but notits direction. The higher the reading, the stronger the trend, regardless ifit is up or down. It is calculated based on the Positive Directional Move-ment Index (+DMI) and Minus Directional Movement Index (-DMI). See+DMI, -DMI, “Capturing Trends Through ADX” in this appendix formore information.
Bar Chart—Shows the open, high, low and close of a market.
High
Open ™ Close
Low
Downtrend—A series of lower lows and lower highs.
Lower
53; Highs
Lower /,Lows |
+DMI—+see Plus Directional Movement Index. 
Appendix 213
-DMI-—see Minus Directional Movement Index.
Exponential Moving Average—A moving average that gives higherweighting to more recent prices.
Fading—Trading contrary to the trend.Gap Down—Today’s open is less than yesterday's low.
Yesterday'sLowToday's Open
Gap Up—Today’s open is greater than yesterday’s high.
Teday’s Open
Yesterday's -””High
Higher High—Today’s high is greater than yesterday’s high. 
214 Appendix
Higher Low—Today’s low is greater than yesterday’s low.
Historical Volatility—A statistical measurement of how much priceshave fluctuated in the past. It can be used to measure risk and potentialreward. See Chapter 4, Stock Selection, Section Three, Volatility and theAppendix for more details.
Initial Protective Stop-—-An order placed right after a trade is entered tohelp control risk.
Lap Down—Today’s open is less than yesterday’s close but not less thanyesterday’s low.
Today's Open
Yesterday
Lap Up—Today’s open is greater than yesterday’s close but not greaterthan yesterday's high,
Today's Open
Yesterday
Limit Order—An order to buy or sell at a specified price.
 Appendix 215
Long—A position that seeks to profit if the market rises. To buy.Lower High—Today’s high is less than yesterday’s high.
Lower Low—Today’s low is less than yesterday’s low.
Market Order—An order to be executed immediately at the asking pricefor buys and at the bid price for sales.
Minus Directional Movement Index (-DMI)—A component used in thecalculation of ADX that measures the downward movement of a market.If it is greater than the Positive Directional Movement, it suggests adowntrend.
Moving Average—The average price of a stock over a given period. Forinstance, a 10-day moving average would be the sum of those prices di-vided by 10. See Chapter 3, Trend Qualifiers for more details.
Outside Day—Today’s high is greater than yesterday's high and today’slow is less than yesterday’s low.
Yesterd 4 Today
  
216 Appendix
Pivot High—A high surrounded by two lower highs. Can also be twoequal (or in rare cases three) highs surrounded by two lower highs.
Pivot Low—A low surrounded by two higher lows. Can also be twoequal (or in rare cases three equal) lows surrounded by two higher lows.
Poor Close—The market closes in the bottom 25% of its range.High.
1 _Bottom 25%
Lowa
Appendix 217
Plus Directional Movement Index (+DMD—A component used in thecalculation of ADX that measures the upward movement of a market. Ifit is in greater than the Negative Directional Movement Index (-DMD, itsuggests an uptrend.
Protective Buy Stop—Used to help control losses when shorting stocks.The order is placed above the current price of the stock. It becomes a mar-ket order if the stock trades at or above the specified price.
Protective Sell Stop—Used to help control losses when buying stocks.The order is placed below the current price of a stock. It becomes a mar-ket order if the stock trades at or below the specified price.
Range—The high price of the day minus the low price of the day. Seealso True Range.
High
_~ Range
Low
Sell Short—A position that seeks to profit if a market drops in value. See“Selling Short: The Art of Playing Both Sides of The Market” in this Ap-pendix for more details.
Stop Order—For buys, an order placed above the current stock price thatbecomes a market order if the stock trades at or above the order price.For sells, an order placed below the current price of the stock that be-comes a market order if the market trades at or below the order price.Stop orders are normally used to help control risk but can also be used toenter positions.
Strong Close—The stock closes within the top 25% of its range.
2 25%
High,
Low
 a a
218 Appendix
Trailing Stop—A stop adjusted higher for long positions or lower forshort positions as the market moves in the favor of the trade. Used tohelp lock in profits for when the market reverses.
Buy
| || | | | \ stopp TLE
Trailing| — Stop
ProtectiveStop
True Range—Conceived by Welles Wilder and used in the ADX calcula-tion, the true range is the same as range except that gaps (if they exist)are used in the calculation.
True range is the largest value (in absolute terms) of:1. today’s high and today’s low
2. today’s high and yesterday’s close
3. today’s low and yesterday's close
True -~ RangeRange“Gap
  
Appendix 219
Uptrend—A series of higher highs and higher lows. See Chapter 3, TrendQualifiers for more details.
HigherHighs
| Higher
Lows
Volatility—How much prices fluctuate over time.220
Appendix
1 originally published the following article on shorting stocks on TradingMarkets.com in January1999. To my surprise, it quickly became one of the most popular articles and has since beenre-published by other Internet sites. Special thanks to Larry Connors, CEO ofTradingMarkets.com, for allowing me to re-publish this article.
SHORTING STOCKS: THE ART OF PLAYINGBOTH SIDES OF THE MARKET
To the public, selling stocks short can be an intimidating and confusingundertaking. Unfortunately, by sticking exclusively to the long side of themarket, average traders deny themselves the possibility of improvingtheir returns.
Professional traders, by contrast, know playing both sides of the marketis a crucial element of long-term stock trading success. We will try to de-mystify the process by explaining what short selling is and how you canbenefit from incorporating it into your trading plan. We'll also show youthe rules that regulate short selling, and how to know which stocks toavoid.
REVERSING THE RULES
When many people think of stock trading they automatically imaginebuying a stock and hoping it goes up. When it does, they envision sellingit and pocketing a profit. For example, suppose XYZ company was trad-ing at $10 per share. You would buy your shares at $10 (a “long” posi-tion) and sell them later at $12. Your profit from the trade would be thedifference between your entry and exit prices: $12 - $10, a $2-per-shareprofit. Nothing complicated here.
But what about when a market is falling? Short selling is simply a matterof reversing the process described in the previous paragraph to profitwhen a stock drops. For instance, suppose XYZ was trading at $12 butyou thought the stock would drop and you sold instead of bought—thatis, you “shorted” the market. If you later bought your shares back at $10,you would still have a $2-per-share profit.
Your trade consists of the same transactions (a buy and a sell) and netsthe same profit. The only difference is that in the case of the short sale,you sell the stock first and buy it back later—hopefully at a lower pricethan where you originally sold it.TEAppendix 221
WHY SHORT STOCKS?
The advantage to selling stocks short is simple: Bull markets do not lastforever, and even in the longest bull market there are corrections that lastfrom as little as a several minutes to as long as several months. Profes-sional traders seize these downside opportunities and profit by shortingstocks. Therefore, if you want to make a long-term living trading thestock market, it is to your advantage to add short selling to your toolbox.
WHAT IT MEANS TO SELL SHORT
In a short selling situation, you enter a position without owing the stock.How can you sell something you do not own? The answer is, you can’t.You have to borrow it before you can sell it. For example, suppose youborrowed what you think is a cheap plate from a neighbor. Now supposesomeone was visiting you and offered you $100 for the plate. You recog-nize that $100 is much more than this plate is worth, so you sell it tohim. But now you owe your neighbor his plate—you are, in essence,short one plate. As long as you can replace it for less than $100, youmake a profit.
Many people have a problem with selling before buying-it just seems tofly in the face of what is “natural.” But the short-selling process is reallyno different than when you order something and place a deposit. Thesalesman to whom you paid the deposit is “short” the product he owesyou. As long as he can fill your order for less than what you have agreedto pay for it, he makes a profit. From the salesman’s perspective, the de-posit ensures you will keep up your end of the bargain.
Short selling stocks is a similar process. If you believe a stock is over-val-ued, you put up a deposit (to cover potential losses) and instruct yourbroker to sell the shares short. To do this, he borrows the shares from an-other account and sells them in the market. You are now short the stock.As long as you can buy it back for less than what you sold it, you willmake a profit.
RULES AND REGULATIONS
The Securities and Exchange Commission (SEC) has established specificrules regulating the short sale of stocks. First, you must have a mar-gin/short account with your broker. Second, the shares for the stock youwish to short must be available to borrow. Third, you can only sell short
TTDg
222
Appendix
on an up tick. Finally, you must have (and maintain) at least 50 percent{or more, see below) of the stock’s value in your account.
Let’s break it down:
1. You must have a margin and short account agreement with your broker.
A “margin” account allows you to use stocks you own as collateral; a“short” account allows you to short stocks. This agreement also allowsyour broker to “borrow” shares from you should other traders wish toshort a stock you own.
2. The stock must be available to borrow.
Your broker must be able to borrow the shares from someone else’s ac-count. If he cannot, no short sale is allowed. Shorting stocks without firstborrowing the shares is known as “naked shorting” and is illegal.
3. The stock must trade on an up tick.
This means that the stock must tick higher before they will allow you to
.short the stock. If you attempt to short a stock that trades at $50, $49 3/4,
$49 1/2, and $49 5/8, your short trade would not be executed until thefirst higher trade in the sequence ($49 5/8). (This rule was instituted tokeep short sellers from manipulating the market.) You also can short sellon an “equal tick” if the preceding trade was an up tick. For example, ifthe stock traded at $50, $49 3/4, $49 1/2, $49 5/8, and again at $49 5/8,you could short sell on the second trade at 49 5/8-you would not have towait for the stock to up’tick again to 49 11/16. Note: as of late 2000, thisrule may be repealed.
4, You must maintain at least 50 percent of the stock’s value in youraccount.
This deposit is required in order to cover potential losses. Just as a sales-man requires a deposit on something you special order, the brokers (andthe SEC) require that you maintain at least 50 percent of the stock’s valuein your account in case your position turns into a loser. If the stock be-gins to rise you would have to add more money to your account (or exitthe position). Conversely, if the stock began to drop you could removeexcess cash (or use it for other transactions) as long as you maintained atleast the 50 percent margin in your account.
While 50 percent is the absolute minimum deposit that brokerages willaccept, some brokers may require a larger deposit. Also, because volatilestocks are riskier, brokerages may require additional margin on these is-sues for extra insurance.a
Appendix 223
SHORT-SELLING STRATEGIESIn general, the majority of patterns that work on the long side of the
market also work (in reverse) on the short side. For instance, just as fromnew highs often present good buy opportunities, pullbacks from lows of-
ten present opportunities to sel! short.
STOCKS TO AVOID
Just because something appears overvalued does not mean it cannot gohigher. Many traders were devastated by shorting “overvalued” biotechstocks in the early 1990s and by shorting “overvalued” Internet stocks inthe late 1990s. This is not to say you should avoid hot sectors all to-gether; it is just a warning to be cautious and realistic about the possibil-ity of sustained stock rallies.
You should always ask your broker if a particular stock you are inter-ested in is hard to borrow. Avoid such stocks because you could easilyget caught in what is known as a “short squeeze,” which occurs when astock rallies and the short sellers are forced to cover (exit) their positions.This demand far exceeds the supply and pushes the stock much higher.If you believe a hard-to-borrow stock is headed lower, you are muchbetter off buying a put option.
SUMMARY
Shorting stocks allows you to enter the market as a seller and profitwhen a stock declines. Your broker “borrows” the stock from someoneelse’s margin/short account and sells it in the market for you. As long asyou buy back the shares at a lower price, you will profit.
To short stocks you must first establish a margin/short account withyour broker. The stock you wish to short must be available to borrowand you must maintain at least 50 percent or more of the stock’s value inyour account. Also, you can sell stock short only on an up tick.
Professional traders sell stocks short because they know markets areprone to corrections and longer-term declines. Many of the techniquesthat work on the long side of the market also work (in reverse) on theshort side. Finally, avoid hard-to-borrow stocks and be cautious aboutshorting stocks in a hot sector.
Copyright © TradingMarkets.com 1999. Any reproduction of this article or any information on this site with-out the express written permission from TradingMarkets.com is forbidden.
REa a
224 Appendix
CAPTURING TRENDS WITH THE ADX
The Average Directional Movement Index (ADX) measures the trendstrength of a market but not its direction. The higher the ADX reading,the stronger the trend, regardless if it is up or down.
The ADX, which was developed by Welles Wilder, uses calculationscalled the positive directional movement index (+DMI) and minus direc-tional movement index (-DMI) to measure price movement. Althoughthe entire ADX calculation is somewhat lengthy and complex, under-standing the basis of the calculation—directional movement—is fairlystraightforward and will help you understand how the indicator works.
Below we will show you how to determine the directional movementand interpret ADX readings.
UNDERSTANDING DIRECTIONAL MOVEMENT
Directional movement is essentially the part of a price bar that falls out-side of the prior price bar’s range. In terms of a daily chart, price actionabove yesterday’s high is positive directional movement (+DM), whileanything below yesterday’s low is negative directional movement (-DM).eSAppendix 225
FIGURE A.1
 
(b) .---
—— Positive Directional Movement (+DM)
Yesterday (a)----
 ----
|— Negative Directional Movememt (-DM)
{d) ----L J
Directional Movement (DM). Price action above yesterday's high is +DM while that below yester-day’s low is ~DM.
 
 
 
In Figure A.1, notice the box a-b above yesterday's price. For today, any-thing above yesterday’s high (for instance, if the market trades from 4 tob is +DM. Conversely, anything trading below yesterday’s low (for in-stance, if the market trades from c to d is -DM.ee ee226 Appendix
FIGURE A.2
 
Yesterday “~~
 
 
 
 
Plus Directional Movement {+DM).
Notice in Figure A.2 that the price bar trades above the prior price bar(from a to b). This distance is the +DM. Referring to Figure A.3, the rangeof the bar that trades below the prior day’s low (from ¢ to d) is the -DM.a
Appendix
FIGURE A.3
227
 
Yesterday
 
4
 
 
Minus Directional Movement (-DM).
Obviously, not every trading day sets up like Figures A.2 or A.3. There-fore, we must consider two other possibilities: inside days and outsidedays. An inside day occurs when the entire day’s range is “contained”within the prior day’s high and low. In other words, today’s high is lessthan yesterday’s high and today’s low is greater than yesterdays low. Forexample, if XYZ traded yesterday between 50 and 60 and trades todaybetween 51 and 59, then today is an inside day. In Figure A.4, noticethere is no DM (either + or ~) because the range doesn’t trade above (fora +DM reading) or below (for a -DM reading).a228 Appendix
FIGURE A4
i
(aj----
“~~. Inside day = No DM
© ----
 
 
 
Inside days have no Directional Movement value.
An outside day occurs when today’s high is higher than yesterday's highand today’s low is lower than yesterday’s low. For instance, if XYZtraded between 50 and 55 yesterday and between 49 and 56 today, todayis an outside day because today’s range is “outside” yesterday's. Becausethere can only be one directional movement (either + or -) per tradingday, the outside day presents an interesting problem because it containsboth +DM (today’s high greater than yesterday‘s high) and -DM (today’slow less than yesterday’s low). Because we are looking to quantify move-ment in price, on an outside day the largest move—either the differencebetween today’s high and yesterday’s high or the difference between yes-terday’s low and today’s low—is the directional movement. This is illus-trated in Figure 5. In the rare case that the move above yesterday’s highis equal to the move below yesterday’s low then there would be no DMfor that day.LL
Appendix
FIGURE A5
229
 
Today(LO) =
.a«-].-{aj----Yesterday a
™ putside day — take the largestof +DM or -DM
= (c) —_—= =“we..t “OM
 
L
 
 
 
For outside days, the Directional Movement is the greater of the +DM or the -DM.
DIRECTIONAL MOVEMENT (DM) SUMMARY:
1. Today’s high > yesterday's high (and today’s low > yesterday's low) =+DM
2. Today's low < yesterday's low (and today’s high < yesterday's high) =-DM
3. Inside day (today’s low > yesterday’s low and today’s high < yester-day’s high) = no DM (either +DM or - DM)
4. For outside days, take the larger of today’s high - yesterday’s high oryesterday’s low - today’s low. If these figures are equal, there is noDM.
To make the directional movement readings meaningful for all markets,Wilder divided the DM by the market’s frue range. This creates a direc-NNAppendix 231
The ADX measures trend strength but not direction. The direction of themarket is determined by comparing the +DMI to the -DMI. If the +DMIis greater than the -DMI the market is in an uptrend; if the -DMI isgreater than the +DMI the market is in a downtrend. Referring to FigureA.6, notice that the +DMI is greater than the -DMI signifying anduptrend. Also, notice that the ADX rose to relatively high levels (above30) as the trend remained strong and the stock quadrupled in value. Onthe downside, in Figure A.7, notice that the -DMI is greater than the+DMI as the ADX remained above relatively high levels (above 30) as thestock continued to decline.
FIGURE A.7
 
 
 
 
 
 
 
 
 
 
 
Iridium, daily. A downtrend is reflected by a -DMI reading greater than the +DMI reading. Notethat the ADX reading, signifying trend strength, is high. Source: Omega Research.
One word of caution: Many trading books would have you believe youcan simply buy a market when the +DMI crosses above the -DMI andsell the market when the -DMI crosses below the +DMI. They go on toa
232
Appendix
show well-chosen examples where you could have followed this simplesystem and made large sums of money. However, nothing could be fur-ther from the truth. What they fail to show you is how much money youwould lose as the DMIs cross back and forth.
USING THE ADX
High ADX readings reflect a strongly trending market. Conversely, lowADX numbers reflect non-trending markets. The minimum reading todetermine a “trend” is subject to debate. In general, 14-day ADX read-ings above 30 suggest a strongly trending market. Those who only wishto trade the strongest of markets may look for readings of 35 or higher.The trade-off here is that the stronger the number, the longer the trendhas been in place. Therefore, much of the original move (that caused theADX to rise) is missed. Those who look to catch early trends may lookfor markets with an ADX of 25 or higher. Not surprisingly, the trade-offhere is that these markets are more prone to failure because they have yetto “prove” themselves.
The advantage of the ADX is that it provides a standardized way of mea-suring trend. This lends itself well to computerized scans for findingtrending markets (i.e., the TradingMarkets.com ADX Search and Filter).These markets can then be watched for potential entries signals frombreakouts, pullbacks, cup-and-handle patterns, and so forth. Coun-ter-trend traders, those who tend to fade markets (trade opposite to thetrend) may look to trade markets that are in a trading range or notrending as measured by a low ADX reading.
SUMMARY
The ADX is based on the directional movement, positive or negative of amarket. The positive directional movement is the portion of today’srange that is above yesterday’s high. The negative directional movementis the portion of today’s range that falls below yesterday’s low.
Only one directional movement is calculated for each day. Therefore, ifthere are both +DMI and -DMI for a given day (ie., an outside day) thenthe larger of the two becomes the directional movement. If today’s rangedoes not trade above or below the prior day (ie., an inside day) thenthere is no directional movement for that day.aAppendix 233
The ADX is calculated by taking the difference of the average directionalmovement values over a given time period. The ADX measures trend butnot direction. The direction of the market is determined by comparingthe +DMI to the -DMI. If the +DMI is greater than the -DMI the marketis uptrending; if the -DMI is greater than the +DMI the market isdowntrending. High ADX readings suggest a market is in a strong trend.Other Books fromM. GORDONPUBLISHING GROUPwww.mgordonpub.com
DAVE LANDRY ON SWING TRADING SOFTWARE ADD-ON MODULE:FOR OMEGA TRADESTATION AND SUPERCHARTS 4.0 AND 2000i
STUART OKOROFSKY
This software add-on module for TradeStation and SuperCharts users takes advantageof the ChartScanner (Version 4.0) or Workspace Assistant (Version 2000i) to scan yourdatabase of stocks for setups based on the trading strategies from the Dave Landry onSwing Trading book. A report is produced listing the name of the stock or commodity,the symbol, the name of the strategy detecting the setup, the recommended entry priceand the recommended initial protective stop price.
1 - 3.5" DISKETTE AND INSTRUCTIONS $175.00
HIT AND RUN TRADINGThe Short-Term Stock Traders’ Bible
JEFF COOPER
Written by professional equities trader, Jeff Cooper, this best-selling manual teaches tradershow to day-trade and short-term trade stocks. Jeff’s strategies identity daily the ideal stocks totrade and point out the exact entry and protective exit points. Most trades risk 1 point or lessand last from a few hours to a few days.
Among the strategies taught are:
* Stepping In Front Of Size—You will be taught how to identify when a largeinstitution is desperately attempting to buy or sell a large block of stock. You willthen be taught how to step in front of this institution before the stock explodes orimplodes. This strategy many times leads to gains from 1/4 point to 4 points withinminutes.
* 1-2-3-4s-—Rapidly moving stocks tend to pause for a few days before they explodeagain. You will be taught the three-day setup that consistently triggers solid gainswithin days.
* Expansion Breakouts—Most breakouts are false! You will learn the one breakoutpattern that consistently leads to further gains. This pattern alone is worth the price ofthe manual.* Also, you will learn how to trade market explosions (Boomers), how to tradesecondary offerings, how to trade Slingshots, and you will learn a number of otherprofitable strategies that will make you a stronger trader.
160 PAGES HARD COVER = $100.00
STREET SMARTSHigh Probability Short-Term Trading StrategiesLAURENCE A. CONNORS AND LINDA BRADFORD RASCHKE
Published in 1996 and written by Larry Connors and New Market Wizard Linda Raschke, this245-page manual is considered by many to be one of the best books written on trading futures.Twenty-five years of combined trading experience is divulged as you will learn 20 of their beststrategies. Among the methods you will be taught are:
* Swing Trading—The backbone of Linda