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The ART of Trading: Combining the Science of Technical Analysis with the Art of Reality-Based Trading PDF

324 Pages·2008·6.03 MB·English
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fm JWBK099-McDowell February 20, 2008 12:49 Char Count= 0 ⃝R The ART of Trading Combining the Science of Technical Analysis with the ® Art of Reality-Based Trading BENNETT A. McDOWELL John Wiley & Sons, Inc. i fm JWBK099-McDowell February 20, 2008 12:49 Char Count= 0 iv fm JWBK099-McDowell February 20, 2008 12:49 Char Count= 0 ⃝R The ART of Trading Combining the Science of Technical Analysis with the ® Art of Reality-Based Trading BENNETT A. McDOWELL John Wiley & Sons, Inc. i fm JWBK099-McDowell February 20, 2008 12:49 Char Count= 0 Disclaimer: This eBook does not include ancillary media that was packaged with the printed version of the book. Copyright ⃝C 2008 by Bennett A. McDowell. 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, 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 con- tained 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 formats. For more information about Wiley products, visit our Web site at www.wiley.com. Designations used by companies to distinguish their products are often claimed as trademarks. In all instances where John Wiley & Sons, Inc. is aware of a claim, the product names appear in initial capital or all capital letters. Readers, however, should contact the appropriate companies for more complete information regarding trademarks and registration. Library of Congress Cataloging-in-Publication Data: McDowell, Bennett, 1957– The art of trading: combining the science of technical analysis with the art of reality based trading / Bennett McDowell. p. cm. – (Wiley trading series) Includes index. ISBN 978-0-470-18772-2 (cloth/dvd) 1. Investment analysis. 2. Speculation. 3. Stocks. I. Title. HG4529.M385 2008 ′ 332.63 2042–dc22 2007049357 Printed in the United States of America. 10 9 8 7 6 5 4 3 2 1 ii fm JWBK099-McDowell February 20, 2008 12:49 Char Count= 0 For my children, Heather Frances and Brady Bennett, with love and affection. iii fm JWBK099-McDowell February 20, 2008 12:49 Char Count= 0 iv fm JWBK099-McDowell February 20, 2008 12:49 Char Count= 0 Contents Foreword ix Preface xi Acknowledgments xiii Diclaimer xv Introduction xvii PART I Reality 1 CHAPTER 1 It’s All About Reality 3 CHAPTER 2 The Reality of Price and Volume 7 CHAPTER 3 Managing Risk: Always Set a Stop-Loss Exit 13 CHAPTER 4 If It Sounds Too Good to Be True . . . 19 CHAPTER 5 Personal Methods to Increase Trading Success 23 CHAPTER 6 Identify Your Personal ART Profile 27 PART II Art 39 CHAPTER 7 Design Your Business Plan 41 CHAPTER 8 Selecting a Financial Market 47 v fm JWBK099-McDowell February 20, 2008 12:49 Char Count= 0 vi CONTENTS CHAPTER 9 Selecting a Time Frame 55 CHAPTER 10 Selecting an ART Platform, Broker, and Data Feed 59 CHAPTER 11 Psychology and the Trader’s Mind-Set 63 CHAPTER 12 Artistic Simplicity 67 CHAPTER 13 The Art of Paper-Trading 71 PART III Science and Math 75 CHAPTER 14 Calculating Proper Trade Size 77 CHAPTER 15 Other Formulas and Recipes 83 CHAPTER 16 The Human Brain 87 PART IV ART System Basics 91 CHAPTER 17 ART Is the Total Solution 93 CHAPTER 18 Pyramid Trading Points (P and MP) 97 CHAPTER 19 Market Truths: Price Bars and Volume 115 CHAPTER 20 ART Reversal Bar Signals (1B and 2B) 121 CHAPTER 21 Trend-Trading Rules 135 CHAPTER 22 Countertrend-Trading Rules 141 CHAPTER 23 Scalping Rules 147 PART V Advanced Techniques 155 CHAPTER 24 When to Use Advanced Techniques 157 CHAPTER 25 Scaling Out and Scaling In 161 fm JWBK099-McDowell February 20, 2008 12:49 Char Count= 0 Contents vii CHAPTER 26 How to Trade Bracketed Markets 167 CHAPTER 27 Software Optimization and Average True Range (ATR) 179 CHAPTER 28 Stop and Reverse (SAR) 183 CHAPTER 29 Higher-Time-Frame Filter 187 CHAPTER 30 Other Filter Techniques 205 CHAPTER 31 Elliott Wave—Ungrounded Assessment 215 CHAPTER 32 Other Ungrounded Assessments 223 Epilogue 231 About the DVD 233 APPENDIX A ART Software Quick-Start 237 APPENDIX B ART Tips 241 APPENDIX C ART Software Technical Support 243 APPENDIX D Resources 247 Glossary 263 About the Author 285 Index 287

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