Trend trading set ups entering and

JWBT779-FM JWBT779-Little Printer: Courier Westford b August 20, 2012 10:39 Trim: 6in × 9in JWBT779-FM JWBT779-Little Printer: Courier Westford a August 20, 2012 10:39 Trim: 6in × 9in JWBT779-FM JWBT779-Little Printer: Courier Westford b August 20, 2012 10:39 Trim: 6in × 9in JWBT779-FM JWBT779-Little Printer: Courier Westford August 20, 2012 10:39 Trend Trading Set-Ups i Trim: 6in × 9in JWBT779-FM JWBT779-Little Printer: Courier Westford August 20, 2012 10:39 Trim: 6in × 9in 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 Web site at www.WileyFinance.com ii JWBT779-FM JWBT779-Little Printer: Courier Westford August 20, 2012 10:39 Trend Trading Set-Ups Entering and Exiting Trends for Maximum Profit L.A LITTLE John Wiley & Sons, Inc iii Trim: 6in × 9in JWBT779-FM JWBT779-Little Printer: Courier Westford Copyright C August 20, 2012 10:39 Trim: 6in × 9in 2012 by L.A Little 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, (978) 750-8400, fax (978) 646-8600, 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, (201) 748-6011, fax (201) 748-6008, or online at http://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 For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002 Wiley also publishes its books in a variety of electronic formats Some content that appears in print may not be available in electronic books For more information about Wiley products, visit our web site at www.wiley.com Library of Congress Cataloging-in-Publication Data: Little, L A author Trend trading set-ups : entering and exiting trends for maximum profit / L.A Little pages cm (Wiley trading series) Includes index ISBN 978-1-118-07269-1 (cloth); ISBN 978-1-118-22247-8 (ebk); ISBN 978-1-118-23640-6 (ebk); ISBN 978-1-118-26108-8 (ebk) Portfolio management Investment analysis Stock price forecasting I Title HG4637.L582 2013 332.6—dc23 2012020177 Printed in the United States of America 10 iv JWBT779-FM JWBT779-Little Printer: Courier Westford August 21, 2012 21:31 Trim: 6in × 9in Contents Foreword ix Acknowledgments xi Introduction PART I CHAPTER Identifying and Qualifying Trend Probabilities Trend Determination 10 Qualified Trend Failure Probabilities 13 Qualified Trade Failure Probabilities 31 Summary 37 CHAPTER Anchor Zones: The Key to Timing Trades 41 Anchor Bars and Zones 42 Reconsidering Trade Failures 46 Summary 54 CHAPTER Broader Influences Affecting Stocks 55 Sector Congruence 59 Virtual Industry Groups—Future Direction 72 General Market Congruence 74 Summary 81 v JWBT779-FM JWBT779-Little Printer: Courier Westford August 21, 2012 vi 21:31 Trim: 6in × 9in CONTENTS PART II 85 CHAPTER Formulating a Workable Trading Plan 89 Trend Direction and Strength 90 Time Frames 94 Entry and Exit Timing 95 Trading Size, Scale Trading, Trade Success Probabilities, and Reward-to-Risk Ratio 100 Evaluating and Acting Upon the Plan 104 Summary 105 CHAPTER The Data behind Trend Trade Set-Ups 107 The Only Two Types of Trade Set-Ups 108 Trading Breakouts and Retraces 111 Breakouts versus Retrace Trade Probabilities 113 Probabilities for Trade Set-Up Scenarios 122 Summary 133 CHAPTER Sideways Range Trades 135 Trade Set-Up Conditions and Categorizations 136 Trading Sideways Trends 137 Summary 155 CHAPTER Breakout and Retrace Trade Set-Ups 157 Retrace Trade Set-Ups 158 Breakout Trade Set-Ups 186 Considering Other Trade Set-Ups 199 Trade Set-Up Rationale and Thoughts 201 Summary 205 JWBT779-bapp JWBT779-Little Printer: Courier Westford August 16, 2012 236 10:20 Trim: 6in × 9in APPENDIX: DATA TABLES TABLE A3.8 Bullish Intermediate-Term Time Frame Trend Failure Probability Rates Where General Market Data Congruency Was Present Number Bars 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 to to to to to to to to to to to to to to to to to to to to to 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 Confirmed Trend Percentages Suspect Trend Percentages Difference Confirmed versus Suspect Individual Cumulative Individual Cumulative Difference Cumulative 0.06% 2.01% 8.47% 10.71% 10.89% 9.70% 8.19% 7.67% 6.66% 6.85% 6.27% 3.46% 3.54% 2.53% 2.42% 2.27% 2.37% 2.09% 1.41% 1.20% 1.24% 0.06% 2.07% 10.54% 21.24% 32.13% 41.83% 50.02% 57.70% 64.35% 71.21% 77.48% 80.93% 84.47% 87.00% 89.42% 91.69% 94.06% 96.15% 97.56% 98.76% 100.00% 0.11% 3.09% 9.28% 10.80% 12.80% 10.25% 8.13% 6.78% 6.24% 4.96% 4.65% 2.81% 2.90% 2.34% 2.94% 2.77% 2.35% 2.04% 1.71% 1.58% 1.46% 0.11% 3.21% 12.49% 23.28% 36.08% 46.33% 54.47% 61.24% 67.49% 72.44% 77.09% 79.91% 82.81% 85.14% 88.08% 90.86% 93.21% 95.25% 96.96% 98.54% 100.00% −0.05% −1.09% −0.81% −0.09% −1.91% −0.55% 0.06% 0.90% 0.41% 1.89% 1.62% 0.64% 0.64% 0.19% −0.52% −0.50% 0.02% 0.05% −0.29% −0.39% −0.21% 0.05% 1.14% 1.95% 2.04% 3.95% 4.50% 4.44% 3.55% 3.13% 1.24% −0.38% −1.03% −1.67% −1.85% −1.33% −0.83% −0.85% −0.89% −0.60% −0.21% 0.00% JWBT779-bapp JWBT779-Little Printer: Courier Westford August 16, 2012 10:20 Trim: 6in × 9in 237 Appendix: Data Tables TABLE A3.9 Bullish Long-Term Time Frame Trend Failure Probability Rates Where General Market Data Congruency Was Present Confirmed Trend Percentages Suspect Trend Percentages Difference Confirmed versus Suspect Number Bars Individual Cumulative Individual Cumulative Difference Cumulative 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 to to to to to to to to to to to to to to to to to to 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 0.05% 1.60% 5.48% 8.88% 10.92% 10.43% 10.53% 11.26% 6.36% 6.55% 7.47% 7.42% 8.01% 4.32% 0.53% 0.05% 0.05% 0.10% 0.05% 1.65% 7.13% 16.01% 26.93% 37.36% 47.89% 59.15% 65.50% 72.05% 79.52% 86.95% 94.95% 99.27% 99.81% 99.85% 99.90% 100.00% 0.00% 1.80% 4.68% 8.07% 9.94% 8.21% 10.23% 10.73% 7.28% 8.36% 8.79% 8.65% 8.36% 4.39% 0.29% 0.00% 0.07% 0.14% 0.00% 1.80% 6.48% 14.55% 24.50% 32.71% 42.94% 53.67% 60.95% 69.31% 78.10% 86.74% 95.10% 99.50% 99.78% 99.78% 99.86% 100.00% 0.05% −0.20% 0.80% 0.81% 0.97% 2.22% 0.30% 0.52% −0.92% −1.81% −1.32% −1.22% −0.35% −0.08% 0.25% 0.05% −0.02% −0.05% −0.05% 0.15% −0.65% −1.46% −2.43% −4.65% −4.95% −5.47% −4.55% −2.74% −1.43% −0.20% 0.15% 0.22% −0.02% −0.07% −0.05% 0.00% JWBT779-bapp JWBT779-Little Printer: Courier Westford August 16, 2012 238 10:20 Trim: 6in × 9in APPENDIX: DATA TABLES Bearish General Market Congruency TABLE A3.10 Number Bars 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 to to to to to to to to to to to to to to to to to to to to to 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 Bearish Short-Term Time Frame Trend Failure Probability Rates Where General Market Data Congruency Was Present Confirmed Trend Percentages Suspect Trend Percentages Difference Confirmed versus Suspect Individual Cumulative Individual Cumulative Difference Cumulative 0.19% 3.70% 9.43% 11.46% 13.92% 8.85% 7.27% 7.56% 7.56% 6.98% 5.59% 3.09% 4.98% 3.34% 1.73% 1.38% 1.44% 0.79% 0.21% 0.27% 0.27% 0.19% 3.89% 13.33% 24.78% 38.71% 47.56% 54.83% 62.39% 69.95% 76.93% 82.52% 85.60% 90.59% 93.93% 95.66% 97.03% 98.48% 99.26% 99.47% 99.73% 100.00% 0.13% 4.18% 10.31% 12.61% 13.72% 9.58% 7.92% 7.08% 6.88% 6.22% 5.14% 3.41% 3.53% 3.25% 1.91% 1.29% 1.00% 1.08% 0.35% 0.20% 0.21% 0.13% 4.31% 14.63% 27.23% 40.95% 50.53% 58.45% 65.53% 72.40% 78.63% 83.76% 87.17% 90.70% 93.95% 95.86% 97.15% 98.15% 99.23% 99.58% 99.79% 100.00% 0.06% −0.48% −0.88% −1.15% 0.21% −0.72% −0.65% 0.48% 0.68% 0.75% 0.46% −0.32% 1.45% 0.10% −0.18% 0.08% 0.44% −0.29% −0.15% 0.06% 0.05% −0.06% 0.42% 1.30% 2.45% 2.24% 2.97% 3.61% 3.14% 2.45% 1.70% 1.24% 1.56% 0.12% 0.02% 0.20% 0.12% −0.32% −0.03% 0.11% 0.05% 0.00% JWBT779-bapp JWBT779-Little Printer: Courier Westford August 16, 2012 Number Bars 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 to to to to to to to to to to to to to to to to to to to to to 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 Trim: 6in × 9in 239 Appendix: Data Tables TABLE A3.11 10:20 Bearish Intermediate-Term Time Frame Trend Failure Probability Rates Where General Market Data Congruency Was Present Confirmed Trend Percentages Suspect Trend Percentages Difference Confirmed versus Suspect Individual Cumulative Individual Cumulative Difference Cumulative 0.04% 1.80% 9.53% 9.77% 9.50% 18.22% 23.37% 12.13% 5.23% 5.21% 2.20% 1.04% 0.73% 0.44% 0.19% 0.12% 0.18% 0.06% 0.09% 0.04% 0.12% TABLE A3.12 0.04% 1.84% 11.37% 21.14% 30.64% 48.85% 72.22% 84.35% 89.57% 94.79% 96.99% 98.03% 98.76% 99.20% 99.39% 99.51% 99.69% 99.76% 99.85% 99.88% 100.00% 0.02% 2.50% 11.76% 12.41% 8.73% 15.74% 19.58% 13.02% 4.85% 5.06% 2.39% 1.29% 0.84% 0.56% 0.38% 0.26% 0.17% 0.17% 0.03% 0.10% 0.10% 0.02% 2.51% 14.28% 26.69% 35.42% 51.16% 70.75% 83.77% 88.62% 93.68% 96.07% 97.36% 98.20% 98.76% 99.14% 99.41% 99.58% 99.76% 99.79% 99.90% 100.00% 0.02% −0.69% −2.24% −2.64% 0.77% 2.47% 3.78% −0.89% 0.37% 0.15% −0.19% −0.25% −0.10% −0.12% −0.19% −0.15% 0.01% −0.11% 0.06% −0.07% 0.01% −0.02% 0.67% 2.91% 5.55% 4.78% 2.31% −1.47% −0.58% −0.95% −1.11% −0.92% −0.67% −0.56% −0.44% −0.25% −0.10% −0.11% 0.00% −0.05% 0.01% 0.00% Bearish Long-Term Time Frame Trend Failure Probability Rates Where General Market Data Congruency Was Present Confirmed Trend Percentages Suspect Trend Percentages Difference Confirmed versus Suspect Number Bars Individual Cumulative Individual Cumulative Difference Cumulative 11 16 21 26 31 to to to to to to to to 10 15 20 25 30 35 0.00% 1.55% 19.17% 21.37% 14.97% 24.48% 17.77% 0.68% 0.00% 1.55% 20.73% 42.10% 57.07% 81.55% 99.32% 100.00% 0.00% 2.91% 20.85% 23.47% 15.32% 19.30% 17.36% 0.78% 0.00% 2.91% 23.76% 47.24% 62.56% 81.86% 99.22% 100.00% 0.00% −1.36% −1.68% −2.10% −0.36% 5.18% 0.41% −0.09% 0.00% 1.36% 3.04% 5.14% 5.49% 0.32% −0.09% 0.00% JWBT779-bapp JWBT779-Little Printer: Courier Westford 240 August 16, 2012 10:20 Trim: 6in × 9in JWBT779-babout JWBT779-Little Printer: Courier Westford August 16, 2012 10:12 Trim: 6in × 9in About the Author L.A Little brings a unique perspective to technical analysis, incorporating more than three decades of trading and engineering experience when analyzing the markets As an author of multiple trading titles and with degrees in Telecommunications (MS), Computer Information Systems (BS), Philosophy (BA), and Computer Science (AAS), L.A.’s holistic approach to trading has been to redefine some of the most basic concepts in technical analysis and to devise methodologies that systematically examine them His philosophical background first requires crisp definitions beginning with the most basic concept of technical analysis: trend As part of the definition, L.A introduces his neoclassical approach to technical analysis, virtually turning it upside down With his approach, trends are qualified, trend lines are replaced with anchored zones, and the technician is provided with a methodology that allows for the measurement of supply and demand at critical junctures on the charts L.A has written extensively for many popular publications such as Stocks and Commodities, Active Trader, TheStreet.com, RealMoneyPro com, and Minyanville.com; has appeared on numerous radio shows; and has presented his concepts at regional and international conferences He is a professional money manager who trades his own accounts and manages investment funds for qualified investors from his Colorado-based home office at the foot of the Rocky Mountains L.A writes and produces live Internet-based video programs daily on his own website, Technical Analysis Today (www.tatoday.com), sharing valuable and interesting market observations while calling the market’s twists and turns daily The concepts presented in both this book and his prior work, Trend Qualification and Trading, are embodied in a set of services that are available at Technical Analysis Today for the serious student, investor and/or trader He can be reached at tat@tatoday.com 241 JWBT779-babout JWBT779-Little Printer: Courier Westford 242 August 16, 2012 10:12 Trim: 6in × 9in JWBT779-bind JWBT779-Little Printer: Courier Westford August 21, 2012 21:35 Trim: 6in × 9in Index AB = CD price projection equation, 165, 177–184 ABC pattern, 177–178 1:1 extension, 179 origins of, 177–178 retrace or pause, 178–179 using in trading, 180–184 ABC pattern, 177–178 Accumulation phase, 100–101, 233 Actualized swing points, 31–34, 56, 58, 59 Ali, Muhammad, 195 Ambivalent sideways trend, 36, 42–43, 44, 83 Ambivalent trends, 74 America Online, 100–101 Anchor bars, 135–153 attributes of, 135 clusters, 136, 137, 150–151 combining with swing points, 154–156 congruent, 136, 137, 151–153 gap, 136, 137, 143–150 high-volume, 136, 137–141 neoclassical trend model, 30–31 wide price spread, 136, 137, 141–143 Anchor bottom, 135 Anchor top, 135 Apple, Inc., 168, 221–224, 225 Apple Corp., 153–153 Automatic/program trading systems, Baker Hughes, Inc., 70 Barclay’s 20-Year Treasury Bond Fund ETF (TLT), 191–195 Bar of Interest, 182–183 Bearish markets, 14, 15, 21–23 primary, 19–20, 21 Bearish reversal, 234–236 Bearish trends, 68, 69–70, 74, 91–95 confirmed, 35, 38–39, 40, 209 continuations, 91–94 suspect, 35, 39–40, 41, 211 transitions, 84, 85, 88, 89, 94–95, 97–98 Beckman Coulter, Inc., 85 Bias See Trading bias Bollinger bands, Bonacci, Leonardo, 179 Breakaway gaps, 146–150 Bullish markets: primary, 10, 14, 18–19, 21–23 Bullish reversal, 236–238 Bullish trends, 66–70, 74, 77–84 confirmed, 35, 37, 38, 66–68, 211 continuation, 77–82 suspect (see Suspect bullish trends) transitions, 82–84 Buying the breakout strategy, 112 Buying the retrace/retest, 111–113, 125–126, 167–168 Celgene Corporation, 51–54 Channels, 156–159 Channel zones, 156–159 Charting packages, 30–31 Classical trend model, 13–23 applying, 18–22 bearish market, 14, 15, 19–20, 21 bullish market, 14, 18–19, 21–23 243 JWBT779-bind JWBT779-Little Printer: Courier Westford August 21, 2012 21:35 244 Classical trend model (Continued ) compared with neoclassical trend model, 27 Dow/Hamilton model as basis, 5–11, 14, 36, 46–47, 109, 114–115 inputs, 14 model definition, 14–15 objective, 13–14 origins, 5–11 purpose and development, 9–10 rules, 15–18 Clustered anchor bars, 136, 137, 150–151 Clustered swing points, 58–60, 154–155 Color: in notation of trends, 36 Confirmed bearish trends, 35, 38–39, 40, 211 Confirmed bullish trends, 35, 37, 38, 66–68, 211 continuation formations, 78–79 transitions, 86–87 Confirmed sideways trends, 36, 40–42, 68–70, 211 Confirmed trends, 28, 36, 37, 74 Congruent anchor bars, 136, 138, 151–153 Continuation gap, 148–150 Continuation of trends: bearish trends, 91–94 bullish trends, 77–82 sideways trends, 89–91 Cooper Industries (CBE), 155 Crossover theory, 10 Cyclical nature of market and trend transition, 43–44, 45 Day traders, 117 Decline, 15 Dell Corporation, 82–84, 92, 94–95, 157 Dennis, Richard, Devon Energy Corp., 86–87 DG FastChannel, Inc., 78–82, 139–140 Discounting information, 50–54 Distribution phase, 101, 233–234 Dow, Charles, 5–10, 14, 15, 18, 36, 46, 115, 215 Trim: 6in × 9in INDEX Dow/Hamilton model, 5–11, 14, 36, 46–47, 109, 114–115 See also Classical trend model Dow Jones Industrial Average, 10, 14, 15–16, 18, 19, 20, 214, 215 Dow Jones Transportation Average, 10, 14, 15–16, 19, 20, 215 Dow Jones Utility Index, 215 Downtrend (bear market), 14, 15, 19–20, 21–23 Downtrending channels, 157 Dow Theory, 7–8, 36 Dow Theory, The (Rhea), 7–8 Duration, 115–116, 118–119 Ebb and flow of markets, 99–101, 257–260 Edwards, Robert D., 7, 208 Enron, 100–101 Entering the trade, 134–159, 247–256 Exchange Traded Funds (ETFs), 215–217 Exchange Traded Notes (ETNs), 215–217 Exhaustion gaps, 146, 148–149 Exiting the trade, 134–159, 261–266 Exxon Mobil Corporation, 175, 177 Fixed time frames, 118–119 Flash Crash, 142–143 Flipping trading positions, 266–274 Gap anchor bar, 136, 137, 143–150 Gap-up situations, 82 Gartley, A M., 177–178 General market, 213, 214 Google, 21–22, 23, 25–28 Greed, 51–53 Hamilton, William P., 5–6, 7–8, 14–19, 22, 36, 44–45, 46, 114–115 Head and shoulders pattern, High-volume anchor bars, 136, 137–141 High-volume reversals, 169–173 volume off the bottom, 173, 175 volume off the top, 172–174 Horizontal channels, 157–159 JWBT779-bind JWBT779-Little Printer: Courier Westford August 21, 2012 Identically priced swing points, 60–61 Information, discounting, 50–54 Intel Corporation, 102–104, 169, 170 Interactive Brokers Group, Inc (IBKR), 147–149, 156 Intermediate-term time frame, 189–190, 200–201, 206, 211, 221 Investools.com, 10–11 iShares Dow Jones US Home Construction ETF (ITB), 267 iShares Dow Jones US Real Estate Sector ETF (IYR), 267–271 Island gap resistance zone, 143–146 Isolated signals versus combination of signals, 173–174 ITB (iShares Dow Jones US Home Construction ETF), 267 IYR (iShares Dow Jones US Real Estate Sector ETF), 267–271 Jones, Edward, 215 Jouflas, Leslie, 177–179 Kemet Corporation, 167 Keynes, John Maynard, 49 Labeling: swing points, 63–65 trends, 65–70 Liber Abaci (Bonacci), 179 Long-term time frame, 49–50, 117, 189–190, 197–200, 206, 211, 221 Long-term trend determination, 49–50 Magee, John, 7, 208 Manual trading systems, Mark-down phase, 101, 233–234 Market sectors, 213–214, 215–217 Mark-up phase, 100–101, 233 Measuring gaps, 146, 149–150 Microsoft Corporation (MSFT), 127–134, 138, 139, 224–227 Trim: 6in × 9in 245 Index How to Make Money (O’Neil), 213 Hypothesis: in scientific inquiry, 21:35 Minor trends: in classical trend model, 16 Models: nature of, trend as, Momentum indicators, Momentum trading strategy, 2, 111, 125–126 Monsanto Company, 93, 169, 171, 172 Moving average convergence divergence (MACD), 1–2 Moving averages, 1–2, 10 Multiple time frames, 119–123, 255–256 Multiple trends: in classical trend model, 16–17 NASDAQ National Association of Securities Dealers Automated Quotation (System), 214, 225, 233, 247 Neoclassical trend model, 6, 25–47 compared with classical trend model, 27 inputs, 29 model definition, 30–36 objective, 26–29 purposes of swing points, 62 rules, 37–46 News, discounting, 50–54 New York Stock Exchange, 52, 243 Noble Corporation, 89, 90 O’Brien, Tom, 177–178 O’Neil, William J., 213 Panic-type selling, 233–234 Paying up/paying down, 53 Pesavento, Larry, 177–179 Potential swing points, 31–34, 56–57 Powershares QQQQ Trust Series ETF, 61–65, 120, 121 Preparing to trade, 109–123 overview of trading strategies, 110–113 reward-to-risk ratio, 113–114 time frames, 114–123 JWBT779-bind JWBT779-Little Printer: Courier Westford August 21, 2012 246 Price: in qualifying trends, 36 Price determinant, 11 Price magnets, 165–166, 175–177, 201 high-volume high magnet, 176–177 high-volume low magnet, 174, 175, 176, 177 Price projections, 165, 174–185 AB = CD price projection equation, 165, 177–184 implications of scale trading, 184–185 price magnets, 165–166, 175–177, 201 Price reversals, 165, 166–174 bearish, 234–236 bullish, 236–238 high-volume reversals, 169–173 Trading Cube configurations, 232–238 trading isolated signals versus combination of signals, 173–174 two-bar, 166–169 under-and-over/over-and-under patterns in which volume expands, 169, 171 under-and-over reversal pattern, 169, 170 Price-to-earnings (PE) ratio, Price zones, 122, 129–134 anchored by bars, 135–153 price points versus, 129–130 support and resistance in setting, 130–132 uptrend/downtrend lines, 132–133 Primary bearish market, 19–20, 21 Primary bull market, 10, 14, 18–19, 21–23 Primary trends: in classical trend model, 16, 18–21, 36 identifying change in, 17–28 in neoclassical model, 44–45 Program/automatic trading systems, Qualifying trends, 29, 36, 73–105, 241–272 entering the trade, 247–256 example of qualified trend, 242–247 21:35 Trim: 6in × 9in INDEX exiting the trade, 261–266 exploiting the trend, 256–261 flipping trading positions, 265–270 following the trend, 251–252 locking in gains, 260–261 measuring reward-to-risk to time the entry, 251–252 relative strength, 249–251 retest and regenerate, 47, 95–104 swing point tests, 62, 65–66, 67–68, 73–75 trading multiple time frames, 255–256 trend continuation and transitions, 75–95 Rally, 15 Randgold Corp., 55, 57, 58, 59, 161 Redefining trend, 3, 7–11 Relative strength, 249–250 Research in Motion (RIMM), 151 Resistance, 126–129 Retail Holders Trust ETF, 217 Retest and regenerate, 47, 81–82, 95–104 See also Swing point tests buying the retrace/retest trading strategy, 111–113, 125–126, 167–168 examples of sequences, 95, 97–99 market logic of ebb and flow, 99–101, 257–260 multiple tests on single bar, 101–102 replacing suspect trends, 102–104 requirement, 95–96 Return on assets (ROA), Reversals See Price reversals Reward-to-risk ratio, 113–114, 165, 180, 183–184, 193, 196, 251–256 Rhea, Robert, 7–8, 13–14, 16 Rubicon Minerals, 88–91 Rural Metro Corporation (RURL), 111–113 Scaled trading, 122 Scale trading, 184–185 Scientific inquiry, JWBT779-bind JWBT779-Little Printer: Courier Westford Index Secondary trends: in classical trend model, 16 identifying change in, 17–28 in neoclassical model, 44–45 Securities and Exchange Commission (SEC), 51 Short selling, 269–271 Short-term time frame, 189–190, 201–203, 206–207, 211, 221 Sideways trends, 39, 84–91 ambivalent, 36, 42–43, 44, 85 confirmed, 36, 40–42, 68–70, 211 continuations, 89–91 creation of, 84, 86–87 suspect, 36, 42, 43, 68–70, 82–84, 211 transitions, 82–84, 83–88 SPDR AMEX Financial Select Index (XLF), 143–147, 217 SPDR Retail ETF (XRT), 217 SPDR S&P 500 ETF (SPY), 33, 37, 38, 39, 40, 41, 42, 43, 44, 45, 60, 67, 69, 142–143, 173, 174, 176, 196–202, 205, 208, 209, 214, 243 Sprint Corporation, 44, 86, 87, 149–150 SPY SPDR S&P 500 ETF, 33, 37, 38, 39, 40, 41, 42, 43, 44, 45, 60, 67, 69, 142–143, 173, 174, 176, 196–202, 205, 208, 209, 214, 244 Stacked swing points, 63–65 Standard & Poor’s Depository Receipts (SPDR) ETY (SPY), 33, 37, 38, 39, 40, 41, 42, 43, 44, 45, 60, 67, 69, 142–143, 173, 175, 177, 196–202, 205, 208, 209, 214, 242 Stock Market Logic (Fosback), 126 Support, 126–127, 128–130 Support and resistance pattern, 2, 126–129 angular support and resistance, 132–133 combining swing points and anchor bars, 154–156 determining, 192–193 downtrend resistance line, 130–131 entry and exit points, 134–159 August 21, 2012 21:35 Trim: 6in × 9in 247 horizontal, 131–132, 133–134 price reversals and, 166 in setting price zones, 130–132 setting resistance zones, 180–185 uptrend/downtrend lines, 132–133 Suspect bearish trends, 35, 39–40, 41, 211 Suspect bullish trends, 35, 37–38, 39, 211 continuation formations, 80–81 retest and regenerate sequence, 81–82 transitions, 84, 85 Suspect sideways trends, 36, 42, 43, 68–70, 82–84, 211 Suspect trends, 28–29, 36, 37, 74, 95–96, 102–104 See also Retest and regenerate Swing point high (SPH), 33, 50–55 Swing point high test, 34, 75, 76 Swing point low (SPL), 33, 54–56 Swing point low test, 34, 75–76, 77 Swing points, 31–36, 47 See also Swing point tests actualized, 31–34, 56, 58, 59 clustered, 58–60, 154–155 combining with anchor bars, 155–156 discounting information, 50–54 formations, 57–65 identifying, 54–57 labeling, 63–65 nature of, 31–34 potential to actualized, 31–34, 56–57 significance of, 29 in trend determination, 50–65 validity across time frames, 65 violation of, 65 Swing point tests, 33, 34–36 See also Retest and regenerate price reversals and, 168 in qualifying trends, 62, 65–66, 67–68, 73–75 swing point high test, 34, 75, 76 swing point low test, 34, 75–76, 77 Swing traders, 117 JWBT779-bind JWBT779-Little Printer: Courier Westford 248 Technical analysis: concept of trend in, 5, Technical Analysis of Stock Trends (Edwards and Magee), Technical tools: charting packages, 30–31 momentum indicators, moving averages, 1–2 proliferation of, 10–11 trading models, 11 trading systems, trend lines, Techniques of Tape Reading (Graifer and Schumacher), 126–127 Time frame analysis, 190–196 choosing time frame, 191 determining support and resistance, 192–193 determining true trend, 191–192 red flags, 193 risk-to-reward ratio, 193 trade results and analysis, 193–195 trading plan, 193 Time frame integration, 195–204 integrating three time frames, 203–204 intermediate-term time frame, 200–201 long-term time frame, 197–200 reward-to-risk bias, 196 short-term time frame, 201–203 trading bias, 190, 197, 204–210, 220–224 Time frames, 189–212 choosing, 189, 191 in classical trend model, 16–17, 23, 109, 114–115 duration, 115–116, 118–119 establishing a trading bias, 204–210 fixed, 118–119 intermediate-term, 189–190, 200–201, 206, 211, 221 long-term, 49–50, 117, 189–190, 197–200, 206, 211, 221 nature of, 189 in neoclassical model, 44–46, 62–63, 109 August 21, 2012 21:35 Trim: 6in × 9in INDEX number of bars available, 118–119 in preparing to trade, 114–123 short-term, 189–190, 201–203, 206–207, 211, 221 single versus multiple, 119–123, 255–256 standardized, 116–118 swing point validity across, 65 in time frame analysis, 190–195 in time frame integration, 195–204 trade trend matrix, 210–211 trading style and, 117–119 varying bar widths, 116 Timing the Trade (O’Brien), 176–179 TLT-ETF (Barclay’s 20-Year Treasury Bond Fund ETF), 191–196 Trade Like the Little Guy (Little), 109, 113, 260 Trade trend matrix, 210–211 Trade What You See (Pesavento and Jouflas), 177–179 Trading bias, 190, 196 effect of time, 207 effect of trading floors, 208–209 establishing, 204–210 for existing shareholders, 220–222 for nonshareholders, 222–224 risk portion, 205–207 Trading ceilings, 208 Trading Cube, 217–238, 242 divergences, 224–227 interpreting, 219–224 nature of, 218–219 reversal configurations, 232–238 strongly trending market, 229–231 trading bias, 220–224 Trading Cube configurations, 227–232 trading range, 231–232 Trading example, 159–164 Trading floors, 208–209 Trading methods, 107–108, 241–272 See also Preparing to trade AB = CD price projection equation in, 180–184 buying the breakout, 112 JWBT779-bind JWBT779-Little Printer: Courier Westford Index buying the retrace/retest, 111–113, 125–126, 167–168 entering the trade, 134–159, 247–256 entry and exit points, 134–160 events in, 159–163 example of qualified trend, 242–247 exiting the trade, 134–159, 261–266 exploiting the trend, 256–261 flipping trading positions, 266–270 momentum, 2, 111, 125–126 overview of strategies, 111–113 short selling, 269–271 support zones, 159, 161 trend-based, 10 types of traders, 117–119 Trading plan, 193 Trading systems, Transition of trends: bearish trends, 84, 85, 88, 89, 94–95, 97–99 bullish trends, 82–84, 84, 87–86 sideways trends, 82–84, 83–87 testing suspect (see Retest and regenerate) Trend determination, 10, 49–71 fundamentals for the long term, 49–50 identifying and labeling trends, 6, 65–70 swing point logic, 50–65 Trend direction problem, Trend-exhaustion tools, 10 Trend-following tools, 10 Trend lines, Trend qualification, 3, 28–29, 65–66 Trends: cyclical nature of, 43–44, 45 defined, 1, 3, 7–9 determination (see Trend determination) Dow/Hamilton model, 5–11 end of, 23 importance of, 3, 5, as model, primary (see Primary trends) August 21, 2012 21:35 Trim: 6in × 9in 249 as primary technical tool, 1–3 qualifying (see Qualifying trends) redefining, 3, 7–11 secondary (see Secondary trends) trend direction problem, trends as equals problem, 1, Trends as equals problem, 3, True trend, 47, 191–192 “Turtle Trading” trading system, Two-bar price reversals, 166–169 Under-and-over/over-and-under patterns in which volume expands, 169, 171 Under-and-over reversal pattern, 169, 170 Unidirectional price points, 61–63 United States Natural Gas Fund ETF (UNG), 97–99 Uptrend (bull market), 10, 14, 18–19, 21–23, 25–26 Uptrending channels, 157 Violation of swing point, 65 Visa, 176–177 Volume: in high-volume reversals, 169–173 in neoclassical trend model, 27–29, 31, 36 in qualifying trends, 36 W D Gann, 132–133 Wall Street Journal, Wal-Mart Stores, 217 Washouts, 234 Wells Fargo & Co., 179–181, 184–185, 246, 249–254, 259–261, 263–266 Western Refining, Inc., 157–160 Wide price spread anchor bars, 136, 137, 141–143 XLF (SPDR AMEX Financial Select Index), 143–146, 217 XLK Technology SPDR ETF, 220, 222, 225 JWBT779-bind JWBT779-Little Printer: Courier Westford 250 August 21, 2012 21:35 Trim: 6in × 9in