Fly Fishing the Stock Market : How to Search for, Catch, and Net the Market's Best Trades

300 Pages·2012·55.96 MB·English

by  Morris, Stephen

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Fly Fishing the
Stock Market
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Founded in 1807, John Wiley & Sons is the oldest independent publish-
ingcompanyintheUnitedStates.WithofficesinNorthAmerica,Europe,
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the market’s ever-changing temperament and have prospered—some by
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theadviceandstrategiesneededtoprospertodayandwellintothefuture.
For a list of available titles, visit our Web site at www.WileyFinance.com.
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Fly Fishing the
Stock Market
How to Search for, Catch, and Net
the Market’s Best Trades
STEPHEN MORRIS
JohnWiley&Sons,Inc.
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Copyright (cid:2)C 2012 by Stephen Morris. 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 oth-
erwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act,
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Some of this book’s materials have first appeared on www.spiketrade.com. Reprinted with
permission.
Charts created using TradeStation. (cid:2)C 2004–2007 TradeStation Technologies, Inc. All rights
reserved. No investment or trading advice, recommendation, or opinion is being given or in-
tended.
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 con-
tained herein may not be suitable for your situation. You should consult with a professional
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LibraryofCongressCataloging-in-PublicationData:
Morris,Stephen,1960-
Flyfishingthestockmarket:howtosearchfor,catch,andnetthebest
trades/StephenMorris.
p. cm.–(Wileytradingseries)
Includesbibliographicalreferencesandindex.
ISBN978-1-118-33604-5(cloth/website);978-1-118-40814-8(ebk);978-1-118-40813-1(ebk)
1.Investmentanalysis. 2.Technicalanalysis(Investmentanalysis) 3.Investments.
4.Stocks. I.Title.
HG4529.M6772012
332.63(cid:3)22–dc23 2012008100
PrintedintheUnitedStatesofAmerica
10 9 8 7 6 5 4 3 2 1
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This book would not have been possible without the help of some key
individuals, and I would like to dedicate this work to them. Dr.
Alexander Elder is mentioned repeatedly throughout these pages.
Without his encouragement, guidance, and inspiration, this project
would have been derailed early on.
Also, many thanks to my very talented editor, Matthew Kushinka
(www.redlinels.com), who is a gentleman in every sense of the word. He
wasveryhelpful,skillful,thorough,andapleasuretoworkwith.
Thankstomydad,whotaughtmehowtoflyfishandinstilledin
mealoveforoutdoorIdaho.Tomymother,whoalwaysencouraged
andsupportedourfishingtrips,andhadadeliciousmealwaiting
foruswhenwereturned.
Finally,thisbookwouldnothavebeencompletedwithoutthecontinual
support,love,andencouragementofmywife.Thankyouforyour
patienceduringmypreoccupationwiththisendeavor.
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Contents
Introduction xiii
PART I Fly-Fishing Lessons
CHAPTER 1 Three P’s in a Pod 3
Passion 4
Patience 4
Persistence 4
CHAPTER 2 The Tackle Box 7
WhatGoesIntotheToolbox 8
BarChartsandCandlesticks—SameMarkets,
DifferentAngles 9
BullishandBearishEngulfingPatterns 13
Trendlines 14
Tops 14
Bottoms 19
FalseBreakouts 20
Gaps 22
Triangles 26
Volume 26
ComputerizedIndicators 28
MovingAverages 30
MovingAverageConvergence-Divergence 32
TheImpulseSystem 39
ForceIndex 41
Conclusion 41
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viii CONTENTS
CHAPTER 3 Developing Your Technique 45
AnalyticalToolsandSteps 46
UnderstandingEntryOrders 49
Conclusion 51
CHAPTER 4 Expectations 53
WhyManagedFundsCanBe“Dilutional” 54
Conclusion 58
PART II Expect the Unexpected
CHAPTER 5 Seeing Is Not Believing 63
GettingTrappedattheExtremeEdge 64
Conclusion 66
CHAPTER 6 The Art of Deception 69
WhenthePreyIsExhausted 70
TheDeceptionsofV-Bottoms 71
TheDeceptionsofSymmetricalTriangles 73
TheDeceptionsofAscendingTriangles 74
TheDeceptionsofHead-and-Shoulders 77
TheDeceptionsofBreakouts 78
Conclusion 80
PART III Time to Go FISHing
CHAPTER 7 Fishing Seasons/Market Seasons 83
MarketSeasons 83
TheInfluenceofVolatility 85
MonitoringMarketSeasonChanges 86
TheWeathervane:AMarketTimingMonitor 86
TheWeatherStation 94