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Mastering The Trade: Proven Techniques for Profiting from Intraday and swing Trading Setups, Second Edition

Book Description

The essential guide to launching a successful career in trading—updated for today’s turbulent markets

Mastering the Trade is an excellent source for a basic understanding of market action, be it day and/or longer-term trend trading. A programmer will have a field day with the many ideas that are in this book. It is highly recommended.”

—John Hill, president of Futures Truth magazine

“John Carter’s new book focuses quickly on the critical area of trader psychology, a realm that will often separate the trader from his wallet if it is not mastered first. The in-depth trading strategies clearly show how to respond to market moves based on real-world examples.”

—Price Headley, founder of BigTrends.com and author of Big Trends in Trading

“Well written and packed with the kind of insight about the nature of trading and the markets that can surely benefit every level of trader.”

—Mark Douglas, author of Trading in the Zone and The Disciplined Trader

“This is a must read for all new traders, specifically for the psychological aspect of trading. I am recommending it to all of my clients.”

—Carolyn Boroden, FibonacciQueen.com

About the Book:

When it was first published in 2005, Mastering the Trade became an instant classic in the world of day trading. Now, veteran day trader and educator John F. Carter has updated his time-proven swing trading technique to help you succeed in an environment vastly transformed by volatility and technology.

Universally acclaimed for its sophisticated yet easy-to-execute methods, this practical, results-driven guide provides everything you need to make a lucrative career as a day trader—from preparing yourself psychologically for the unique demands of day trading to timing the market, managing risk, and planning future trades.

Mastering the Trade sets aside timeworn basics and rehashed ideas to examine in detail the underlying factors that cause prices to move. Providing the tools you need to make the right decisions at the right times, it helps you enter market shifts early and either pull out before losses accrue or hang on for a long and refreshingly predictable ride. Mastering the Trade covers:

The five psychological truths that will transform you from a mistake-prone novice into a savvy trading professional

Exact entry, exit, and stop-loss levels for the intraday trading of stocks, options, ETFs, e-mini futures, 30-year bonds, currencies, and more

Seven key internals, from $TICKS to five-minute volume—critical for gauging pending market direction from the opening bell

Premarket checklists for analyzing recent market behavior and calculating on each trading day what you plan to do, how you plan to do it, and why

Airtight risk control techniques for protecting trading capital—the most important component of a professional trading career

After spending many years on various trading desks, Carter has developed an intuitive understanding of how the markets work. In Mastering the Trade, he gives you unlimited access to everything the markets have taught him—so you can make an exceptional living on the frontlines of professional trading.

Table of Contents

  1. Cover Page
  2. Mastering The Trade: Proven Techniques for Profiting from Intraday and swing Trading Setups, Second Edition
  3. Copyright Page
  4. Dedication
  5. Contents
  6. Acknowledgments
  7. Foreword by Peter Borish
  8. Introduction
  9. Part 1 : Trader’S Boot Camp: How Do the Markets Work and What Are the Best Ways to Get Mentally Prepared for Successful Trading and Investing?
    1. 1 What Really Causes the Markets to Move?
      1. Did You Know That Most People Who Lose Money in the Markets Do So Because of These Four Things?
      2. How Do Our Odds for Success Increase Once We Understand the Pain and Suffering of Individual Market Participants?
      3. The Case Study You Will Never Read About at Harvard Business School, or, Has This Ever Happened to You or Your Spouse?
      4. A Note from My Wife: How Have I Dealt with Being Married to John Carter the Trader?
      5. How Do I Top That?
      6. How Does a Person Make Money from a Fake Orgasm?
      7. What Is the Only Economic Principle That Matters in the Markets?
    2. 2 Psychology 101: What Didn’t They Teach About Trading and Investing in School?
      1. Emotions Are Fine at Weddings and Funerals; Why Aren’t They Fine When It Comes to Trading and Investing?
      2. Why Is a Guy with a System Always Welcome in a Casino?
      3. What Is the Right Mental Outlook for the Markets, and Why Shouldn’t I Turn on My Computer Without It?
      4. Minnesota Stupid
      5. Why Do Most Traders Have to Blow Out an Account Before It All Sinks In?
      6. The Trader Mindset: What Is the Best Way for Getting, and Keeping, Your Head in the Game?
      7. What Is the Easiest Way to Establish a Consistently Winning Outlook?
      8. What Does Personal Integrity Have to Do with Successful Trading?
      9. Where Are You Now in Your Trading Journey?
      10. Phase I Trading: Destined to Lose—What Are the Traits That Make People a Success in Life but Routinely Get Them Killed in the Markets?
      11. Phase II Trading: Fear-Based Trading, or, “Why Does Everything I Touch Turn to Crap?”
      12. Phase III Trading: Why Is the Search for the Holy Grail Guaranteed to Limit Your Success as a Trader and an Investor?
      13. What Are the Signs That a Trader Is Stuck in Phase I, II, or III?
      14. Paper Trading: Why Is It More Worthless Than an Iraqi Dinar?
      15. But What About Phase IV—How Does a Person Learn How Not to Lose Money?
      16. Why Does the Plateau Money Management Method Work?
      17. When Trading and Investing, What Are the Best Ideas to Keep in Mind?
    3. 3 Hardware and Software—Top Tools for Traders
      1. Hardware: When It Comes to Your Trading Computer, What Are the Most Important Things to Know?
      2. Taming the Technological Beast: What Dangers Should I Be Aware of When It Comes to My Computer?
      3. Why Aren’t All Quotes Created Equal?
      4. How Can a Bad Execution Platform Ruin My Account?
      5. Why Do Most Financial Newsletters Suck?
      6. How to Establish Priorities: If You Are Getting Interrupted During the First Two Hours of Trading, Why Is It Your Fault?
      7. Why Is Watching Harry Potter on DVD after 12 Noon Eastern Better Than Watching CNBC?
    4. 4 Futures Markets 101—Understanding the Basic Mechanics of the Futures and Commodity Markets
      1. The World Beyond Stocks: Why Is It Important?
      2. Markets Are a Reflection of the People Who Trade Them: Is Your Competition Wired on Starbucks or Methodically Filling in a Crossword Puzzle?
      3. Why Should Traders Learn About the Futures Markets?
      4. In a Nutshell, What Do Traders Really Need to Know?
      5. The Mini-Sized Dow Versus the E-Mini S&P 500: Does It Matter?
      6. When Is Liquidity King?
      7. Contract Specifications—What Does a Trader Need to Know to Trade the Key Commodity Markets?
      8. How Are Forex Moves Measured?
      9. How Can You Hedge Your Own Life in the Forex Markets?
      10. For Traders, This Is All You Need to Know
    5. 5 Stock Options: How Do They Work and What Is the Best Way to Trade Them?
      1. Why Is Option Trading Awesome to Some and Scary to Others?
      2. What Would You Pay for a First-Class Plane Ticket to Singapore?
      3. Why Wouldn’t I Buy These Particular Options with My Mother-in-Law’s Trading Account?
      4. Directional Plays: Why Is Delta 0.70 or Better Superior?
      5. The Importance of Implied Volatility Crush, or “Look, Ma, They’re Panicking!”
      6. How Do You Know When to Hold ‘Em and When to Spread ’Em?
    6. 6 The Stock Market Is Now Open—What Is the Best Way to Predict Market Direction Throughout the Trading Day?
      1. Musicians Know How to Read Music; Can Traders Learn How to Read the Markets?
      2. How Do You Track Institutional Trading?
      3. What Is The Fastest Heads-Up That Stocks Are About to Make a Move?
      4. What Is The Best Tool for Reading Buying Versus Selling Pressure?
      5. Is There a Similar Tool Just for Nasdaq Stocks?
      6. Put/Call Ratio—Is This the Key to the Kingdom?
      7. What Is the Most Effective Way to See What’s Really Going On In the Stock Market During the Day?
      8. How Do You Know When It’s Going to Be a Choppy Day?
      9. Listening In on the Floor—What Is the True Value of Pit Noise?
      10. Putting It All Together—How Can You Size Up the Trading Day from the Opening Bell?
      11. What Are the Other Main Things to Keep Track Of?
      12. And, Oh Yes, Did You Know That If You Ignore This One Thing, You Don’t Stand a Chance?
      13. Summing Up
  10. Part 2 What Are The Best Intraday And Swing-Trading Setups For Futures, Stocks, Options, And Forex?
    1. 7 The Opening Gap: Why Is This the First and Highest-Probability Play of the Day?
      1. How Is Trading Without a Specific Setup in Mind Like Hiking in the Amazon Without a Compass?
      2. Why Aren’t All Gaps Created Equal?
      3. What Are the Trading Rules for Gaps?
      4. Who Is Getting Hurt on This Trade?
      5. What Are Some Specific Examples of Trading the Gap?
      6. What’s the Secret to Unfilled Gaps?
      7. What Are the Best Strategies for People Who Can’t Trade Full Time?
      8. How Does a Trader Position Size for This Setup?
      9. Summing Up the Gaps
    2. 8 Pivot Points: Why Are These Good Pausing Points for Trending Days and Great Fading Points for Choppy Days?
      1. What Is the Best Way to Beat Indicator-Based Traders?
      2. Why Aren’t All Pivots Created Equal?
      3. How Exactly Should I Set Up the Pivots on My Charts?
      4. The Psychology Behind the Pivots—Who Is Getting Burned?
      5. What Are the Trading Rules for Pivot Buys on Trending Days?
      6. What Are the Trading Rules for Pivot Buys on Choppy Days?
      7. What Are Some Specific Examples of Trading the Pivots?
      8. Trailing Stops in This Fashion Is the Key
      9. Tips and Tricks for Using the Pivots
      10. What About Fibonacci Numbers?
      11. What’s the Best Way to Trade Commodity Markets with Pivots?
      12. Summing Up the Pivots
    3. 9 Tick Fades: Are They Really the Best Way to Take Money Away from Newbies?
      1. What Is the Number One Action Alert Available to Traders Today?
      2. What Are the Trading Rules for Sell Fades (Buys Are Reversed)?
      3. What Are Specific Examples of Tick Fade Setups?
      4. Summing Up the Tick Fades
      5. How Do You Know When Fading Ticks Won’t Work?
      6. How Do We Trade “Going With” the Ticks Instead of Fading Them?
    4. 10 Reverting Back to the Mean, or, “When Is the Best Time to Take a Profit?”
      1. Where Do Markets Stop Their Current Trend and Run Out of Gas?
      2. This Sounds Awesome—Why Isn’t Everybody Doing This?
    5. 11 The Squeeze: What Is the Best Way to Get Positioned for the Big Market Moves?
      1. Is It Better to Trade for Cash Flow or to Create Wealth?
      2. How Does a Trader Redefine Volatility and Use It to His Advantage?
      3. What Is the Best Way to Get in Right Before a Big Move?
      4. What Are the Trading Rules for Buys (Sells Are Reversed)?
      5. What Is the Biggest Mistake New Traders Make?
      6. Is It Possible to Get Positioned Before a Market Crash?
      7. What Is the Best Trading Strategy for Those of Us Who Have a Job and Can’t Trade Full Time?
      8. Updated Examples for the Financial Crisis and Beyond
      9. What Is the Best Way to Filter Out Squeezes That Might Not Work Out?
    6. 12 Catching the Wave: What Is the Easiest Way to Stay on the Right Side of the Trend on Any Market, on Any Time Frame?
      1. Why Is It Critical to Understand the Concept of Anchor Charts?
      2. What Exactly Are the Waves, and How do They Work?
      3. How Can I Use the Waves to Sneak into a Squeeze Before It Fires Off?
    7. 13 What Is the Best Tool for Staying in a Trade and Not Jumping Out Too Early?
      1. Entries Are a Dime a Dozen; It’s the Exits That Make You Money
      2. How Do I Protect Myself When They Are Trying to Shake Me Out of My Position?
    8. 14 Scalper Alerts: Is This the Best Tool for Quick Price Trend Change Confirmation?
      1. How Do You Identify and Profit from Changes in Trend Without Catching a Falling Knife or Stepping in Front of a Freight Train?
      2. Why Are Tick Charts Best for Scalping?
      3. What Are the Trading Rules for Buys (Sells Are Reversed)?
      4. Specific Examples of Scalper Alert Buy and Sell Setups
      5. Summing Up the Scalper Alerts
      6. Increase the Probabilities of Success Through Multisetup Combinations
    9. 15 Brick Plays: How Can I Tell When a Market Is Going to Reverse Its Trend in the Middle of the Day?
      1. Using Bricks to Capture Intraday Reversals in the Mini-Sized Dow
      2. Trading Rules for Buys (Sells Are Reversed)
      3. Summing Up the Bricks
    10. 16 The Ping-Pong Play: Batting the Markets Back and Forth . . . All Day Long
      1. A Trading Channel That Moves and Adapts to the Markets in Real Time
      2. Trading Rules for Buys (Sells Are Reversed)
      3. When You’re Dancing with the Market, It’s a Good Idea to Let It Lead
    11. 17 The 3:52 Play: Capping Off the Day with a Fine Cigar
      1. This Is Where the Other People Start to Panic
      2. Trading Rules for Buys (Sells Are Reversed)
      3. Summing Up the 3:52 Play
    12. 18 Box Plays—On Days when the Stock Market Is Dead in the Water, Look to the Currencies
      1. Measuring the Length of the Move Before It Occurs
      2. Trading Rules for Buys (Sells Are Reversed)
      3. Summing Up the Currency Box Play
    13. 19 HOLP and LOHP—Catching Trend Reversals Without Getting Smashed
      1. Buying a Market Just Because It’s Cheap or Shorting a Market Just Because It’s Expensive Is Dangerous—Unless It’s Done Like This
      2. Trading Rules for Sells (Buys Are Reversed)
      3. Summing Up the HOLP and LOHP Plays
    14. 20 Gold Trades and the Darvas Box
      1. This Is How I Like to Trade Gold
      2. Welcome to Trading. Are You Ready for the Bad News?
      3. Why Should You Consider Trading Gold?
      4. The Famous Good Night Gold Trade
      5. The Gold Rush Trade
      6. The Gold Spike Trade
      7. How Do I Buy Bottoms and Sell Tops?
      8. Darvas: How to Make Million Dollars in the Stock Market
    15. 21 Our Live Trading Room and Streaming Real Time Analysis
      1. It’s All About the Timing
      2. Let’s Dig into the Setups
      3. Getting Familiar with the TTM Momentum and TTM Trigger
      4. Summing Up the Trades
    16. 22 Propulsion Plays—Swing Plays Using Stocks, Single-Stock Futures, and Stock Options
      1. Setting Up for the Bigger Moves in Individual Stocks
      2. The Trader’s Guide to Single-Stock Futures
      3. The Only Way to Play Individual Stock Options
      4. Trading Rules for Buy Fades (Sells Are Reversed)
      5. Updates to the Propulsion Trades
      6. Summing Up the Propulsion Plays
  11. Part 3 Heading Back Into The Real World Of Trading
    1. 23 The Premarket Checklist—Creating a Game Plan for the Next Trading Day
      1. Like Running a Credit Check, to Understand What the Market Is Going to Do in the Future, It Helps to Understand Its Past
      2. Monthly Chart Analysis
      3. Weekly Chart Analysis
      4. Daily Chart Analysis
      5. 60-Minute Chart Analysis
      6. Daily RSI Chart Analysis
      7. 60-Minute RSI Chart Analysis
      8. Index Radar Screen Alert
      9. Sectors and Key Stocks Radar Screen Alert
      10. The Key to Reading Daily Volume
      11. The Key Price Levels to Know Each and Every Trading Day
      12. Pivot Numbers, of Course
      13. Key Sentiment Readings
      14. It’s a Good Idea to Know What These People Are Doing
      15. Miscellaneous Items
      16. What Does Your Mother Think?
      17. Summing Up the Premarket Checklist
    2. 24 The Trader’s Business Plan
      1. Who Gets to the World Series—the Team with a Plan or the Team That Decides to Wing It?
      2. Why Am I Trading Again This Year?
      3. Happy Wife, Happy Life
      4. What Markets Am I Going to Trade?
      5. Why These Markets? What Specific Trading Strategies Am I Going to Use?
      6. How Much Money Am I Going to Allocate to Each Trading Strategy and Setup?
      7. What Execution Methods Will I Be Using? What Parameters?
      8. How Am I Going to Track and Rank My Trades?
      9. What Are My Drawdown Rules?
      10. What Are My Profit Rules?
      11. What Is My Office Setup Going to Be Like?
      12. What Are My Rewards If My Trading Is Going Well?
      13. Are There Any Groups, People, or Organizations I’d Like to Help Out This Year?
      14. What Are My Specific Plans for Staying “On Plan” Throughout the Year?
      15. What Am I Doing About My Physical Health?
      16. Concluding Thoughts on My Plan
      17. A Sample Plan from a Beginning Trader
      18. Summing Up the Trading Plan
    3. 25 Tips and Tricks for When It’s Not Working for You, No Matter What You Do
      1. Will Cry for Food—Using Your Emotions to Make Money
      2. The Four Seasons Hotel Trade
      3. Thank You, Sir, May I Have Another?
      4. When I Tick, You Tick, We Tick
      5. Dive, Captain, Dive
      6. High Five, Baby
      7. Discover Your Personality Type and Find Out If It’s Holding You Back
      8. Personality Types and Trading—What You Don’t Know About Yourself Can Hurt Your Trading
      9. Trading Really Isn’t That Easy—Alternatives to Consider for Jump-Starting Progress
    4. 26 Mastering the Trade
      1. Amateurs Hope; Professionals Steal
      2. 40 Trading Tips for Maintaining a Professional State of Mind
      3. Surviving the Trader’s Journey
      4. Before He Trades
      5. The Easier Path: Swing Trading
      6. Conclusion and Final Thoughts
  12. Index