Tools and Tactics for the Master DayTrader: Battle-Tested Techniques for Day, Swing, and Position Traders

397 Pages·2000·6.526 MB·English

by  Oliver Velez

title: Tools and Tactics for the Master Day Trader :
Battle-tested Techniques for Day, Swing, and
Position Traders
author: Velez, Oliver L.; Capra, Greg.
publisher: McGraw-Hill Professional
isbn10 | asin:
print isbn13: 9780071360531
ebook isbn13: 9780071379199
language: English
subject Electronic trading of securities--Handbooks,
manuals, etc, Day trading (Securities)--Handbooks,
manuals, etc.
publication date: 2000
lcc: HG4515.95.V45 2000eb
ddc: 332.64/2/0285
subject: Electronic trading of securities--Handbooks,
manuals, etc, Day trading (Securities)--Handbooks,
manuals, etc.
TOOLS AND TACTICS
FOR THE MASTER
DAY TRADER
Battle-Tested Techniques
for Day, Swing, and
Position Traders
OLIVER VELEZ
GREG CAPRA
Copyright © 2000 by The McGraw-Hill Companies, Inc. All rights reserved. Manufactured in
the United States of America. Except as permitted under the United States Copyright Act of
1976, no part of this publication may be reproduced or distributed in any form or by any means,
or stored in a database or retrieval system, without the prior written permission of the publisher.
0071379193
The material in this eBook also appears in the print version of this title: ISBN: 0-07-136053-0.
All trademarks are trademarks of their respective owners. Rather than put a trademark symbol
after every occurrence of a trademarked name, we use names in an editorial fashion only, and to
the benefit of the trademark owner, with no intention of infringement of the trademark. Where
such designations appear in this book, they have been printed with initial caps.
McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales
promotions, or for use in corporate training programs. For more information, please contact
George Hoare, Special Sales, at [email protected] or [phone].
TERMS OF USE
This is a copyrighted work and The McGraw-Hill Companies, Inc. ("McGraw-Hill") and its
licensors reserve all rights in and to the work. Use of this work is subject to these terms. Except
as permitted under the Copyright Act of 1976 and the right to store and retrieve one copy of the
work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create
derivative works based upon, transmit, distribute, disseminate, sell, publish or sublicense the
work or any part of it without McGraw-Hill's prior consent. You may use the work for your own
noncommercial and personal use; any other use of the work is strictly prohibited. Your right to
use the work may be terminated if you fail to comply with these terms.
THE WORK IS PROVIDED ‘AS IS’. McGRAW-HILL AND ITS LICENSORS MAKE NO
GUARANTEES OR WARRANTIES AS TO THE ACCURACY, ADEQUACY OR
COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK,
INCLUDING ANY INFORMATION THAT CAN BE ACCESSED THROUGH THE WORK
VIA HYPERLINK OR OTHERWISE, AND EXPRESSLY DISCLAIM ANY WARRANTY,
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. McGraw-Hill and its
licensors do not warrant or guarantee that the functions contained in the work will meet your
requirements or that its operation will be uninterrupted or error free. Neither McGraw-Hill nor
its licensors shall be liable to you or anyone else for any inaccuracy, error or omission,
regardless of cause, in the work or for any damages resulting therefrom. McGraw-Hill has no
responsibility for the content of any information accessed through the work. Under no
circumstances shall McGraw-Hill and/or its licensors be liable for any indirect, incidental,
special, punitive, consequential or similar damages that result from the use of or inability to use
the work, even if any of them has been advised of the possibility of such damages. This
limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause
arises in contract, tort or otherwise.
DOI: 10.1036/0071379193
This book is dedicated to my beautiful, ever
patient, and supportive wife Brenda, the very
best investment I ever made, and to my daughter
Rebecca and my son, Oliver Jr., the sweetest
dividends I've ever received.
This book is also dedicated to my loving parents,
Dwight Velez and Louise Velez, who taught me
that mastery of life easily follows he who has
mastered himself.
O.V.
To my wife Lori, for her love, support, and
understanding through this exciting journey.
G.C.
CONTENTS
Preface xv

Introduction xxi

PART ONE
SEEDS OF WISDOM FOR THE MASTER TRADER: Preparing the Trader's Mind
for Greatness

Chapter 1
Initiation of the Master Trader: Understanding the Master Trader's World 3

Do You Understand How High the Cost Is? 3
The Master Trader Requires Only a Few Tools 4
Seeking Success in That Place Called the Here and Now 5
Charts Don't Lie 8
Tracking the Footprints of Money 9
Give Me the Technicals, or Give me Death 11
Don't Show Up to a Gunfight with Just a Dull Knife 12
Seek Knowledge First, Profits Second 14
Short-Term Time Frame: The Master Key to Higher Trading Accuracy 15
Why the Short-Term Time Frame Is the Safest Time Frame 16
My Three Greatest Discoveries 18
Love: The Trader's Greatest Power 21
Traders and Fortune Tellers 23

Chapter 2
Developing the Master Trader's Mind: Keys to Correct Trading Behavior 25

Are You Gambling or Trading? 25
A Win Is Not Always a Win and a Loss Is Not Always a Loss 27
The Masses Can't Win For Long 28
The Bandwagon Theory: A Glimpse at How the Market Really Works 29
Money Isn't Everything 31
The Danger in Asking “Why” 33
When Accuracy Becomes a Problem 34
The Entry is 85 Percent of the Trade 36
Your Perception Will Become Your Reality 37
Facts Will Not Make You Money 39
The Truth Doesn't Count on Wall Street 40
You Must Become Inhuman to Trade Successfully 41
Opportunity Lies Where the Majority Is Afraid to Go 43
Not a Cloud in the Sky? Watch Out! 44
The True Measure of a Successful Trader 45
When No Action Is the Best Action 46
Standing Still: The Highest Action of All 47
A Lesson in the Art of Standing Still 48
“Hey Man, Don't Teach Me How to Think; Teach Me How to Trade!” 50
What Are You Doing with What You Have Today? 51
Is the Past in Your Way? 53
Breaking the Cycle of Pain and Pleasure 54
Sound Techniques Lead to Sound Instincts 56
A Little Paranoia Is Good for the Soul 58
A Positive Mental Attitude Makes a Difference 60
Trading with Attitude 62
Daily Food for Thought 63

Chapter 3
Loss: The Prerequisite to Trading Power and Success 67

The Power of Adversity 67
Make Your losses Work for You 68
Small Losses: The Hallmark of a Master Trader 69
How the Market Speaks to Us 71
How to Lose Your Way to Success 72
Starting Each Day Anew 73
Learn How to Accept What Can't Be Changed 74
Losing Can be Winning 75
You Must Learn to Despise Big Losses 77
The Two Lives of a Master Trader 78
Growth Is a Flower That Blooms with Time 79
When Losing Becomes Unbearable 81
Get the Most from Your Tuition 82
Chapter 4
Education of the Master Trader: How to Save Yourself from Years of Lost Time 83
and Money

Find a Winner to First Emulate—Then Surpass the Winner 83
The Character of Your Teacher Matters 84
Don't Be Cheap with Your Future 85
Today, Those Who Can, Do and Teach 88

Chapter 5
The Seven Deadly Sins of Trading: How to Combat Them and Defeat Them 91

Deadly Sin #1: Failing to Cut Losses Short 91
Deadly Sin #2: Dollar Counting 93
Deadly Sin #3: Switching Time Frames 96
Deadly Sin #4: Needing to Know More 98
Deadly Sin #5: Becoming Too Complacent 100
Deadly Sin #6: Winning the Wrong Way 102
Deadly Sin #7: Rationalizing 105
How to Find and Kill Your Deadliest Demon 107

Chapter 6
12 Trading Laws of Success: Rules the Master Trader Lives By 111

Law #1: Know Thyself 111
Law #2: Know Thy Enemy 113
Law #3: Get Thee Some Education, Fast 114
Law #4: Protect Thy Most Valuable Commodity 117
Law #5: Keep it Simple 119
Law #6: Learn from Thy Losses 120
Law #7: Keep Thee a Trading Journal 122
Law #8: Don't Make Low-Priced Stocks Thy Main Focus 124
Law #9: Don't Diversify 126
Law #10: Realize That No Action Is, at Times, the Best Action 127
Law #11: Know When to Bow Out Gracefully 128
Law #12: Don't Ever Make Excuses—They Never Made Anyone a Dime 130
Chapter 7
Secrets of the Master Trader: 15 Things Every Trader Should Know, But Doesn't 133

Secret #1: There Are No Gifts on Wall Street 133
Secret #2: Someone's on the Other Side of Your Trade, and It's Not Your Friend 135
Secret #3: Professionals Sell Hope; Novices Buy Hope 136
Secret #4: Home Runs Are for Losers 138
Secret #5: Make the Chart and the Crowd Will Follow 139
Secret #6: All Major Stock Market Averages Lie 140
Secret #7: Buying After the Open Is Usually Better 142
Secret #8: It Usually Doesn't Pay to Take Profits Before the Open 143
Secret #9:11:15 to 2:15 EST Is the Worst Possible Time to Trade 144
Secret #10: It's Always Darkest Before the Dawn 145
Secret #11: Wall Street Gurus Will Always Be Wrong 147
Secret #12: Playing Earnings Is a Game for Novices 148
Secret #13: Paying Up for Stocks Betters the Odds 148
Secret #14: The Buy-Low Sell-High Method Is Wrong for Day Traders 150
Secret #15: Knowing What's Next Can Make You Rich 151

Chapter 8
10 Lessons for the Master Trader 153

Lesson #1: Cash Is King When the Street Gets Bloody 153
Lesson #2: Time Diversification Minimizes Market Risk 155
Lesson #3: Buying Versus Accumulating 155
Lesson #4: The Ultimate Decision-Making Tool 156
Lesson #5: Selling the Dogs and Buying the Dolls 157
Lesson #6: Brains or a Bull Market? 157
Lesson #7: Rating Newsletters and Other Advisors 158
Lesson #8: Time Equals Money 158
Lesson #9: Winners Make It Happen; Losers Let It Happen 159
Lesson #10: Using the Power of Promises 160

Chapter 9
Final Words of Wisdom from a True Master 163
Eight Elementary Lessons for Life and Trading—by Mother 163
PART TWO:
TOOLS AND TACTICS FOR THE MASTER TRADER: Developing the Arsenal of a
Master Trader

Chapter 10
Market Timing Tools and Tactics 169

Market Tool #1: S&P Futures (S&P) 170
Market Tool #2: NYSE TICK Indicator ($TICK) 171
Market Tool #3: NYSE Trader's Index (TRIN) 175
Market Tool #4: New Lows(NLs) 180
Market Tool #5: Mighty 5 Index 185
A Stock Market Quiz 188
A Final Word on the Market 190

Chapter 11
Charting Tools and Tactics 193

Introduction to Charting 193
A Charting Primer 194
Charting Tool #1: Narrow-Range Bar (NRB) 199
Charting Tool #2: Reversal Bars (RB) 201
Charting Tool #3: Tails 205
Charting Tool #4: Gaps 210
Charting Tool #5: Support and Resistance 215
Charting Tool #6: Retracements 218
Charting Tool #7: Reversal Times 224
Charting Tool #8: Climatic Volume 231
Charting Tool #9: Moving Averages 233
Charting Tool #10:3 to 5 Bar Drop 237

Chapter 12
Execution Tools and Tactics 249
Execution Tool #1: Electronic Communication Networks (ECNs) 251
Execution Tool #2: Small-Order Execution System (SOES) 255
Execution Tool #3: SelectNet (SNET) 259
Execution Tool #4: Archipelago (ARCA) 263
Execution Tool #5: SuperDOT 266