Ordinary People, Extraordinary Profits: How to Make a Living as an Independent Stock, Options, and Futures Trader + DVD

287 Pages·2005·5.35 MB·English

by  David S. Nassar

Ordinary People,
Extraordinary
Profits
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Ordinary People,
Extraordinary
Profits
How to Make a Living as an
Independent Stock, Options,
and Futures Trader
DAVID S. NASSAR
John Wiley & Sons, Inc.
Copyright © 2006 by David S. Nassar. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
Nassar, David S.
Ordinary people, extraordinary profits : how to make a living as an independent stock, options, and
futures trader / David Nassar.
p. cm.—(Wiley finance series)
Includes bibliographical references and index.
ISBN-13: 978-0-471-71236-7 (cloth/dvd)
ISBN-10: 0-471-71236-1 (cloth/dvd)
ISBN-13: 978-0-471-72399-8 (cloth)
ISBN-10: 0-471-72399-1 (cloth)
1. Investment analysis. 2. Portfolio management. 3. Risk management. 4. Investments. I.
Title. II. Series.
HG4529.N372 2005
332.6—dc22
2005010210
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
Contents
Preface xi
Acknowledgments xiii
INTRODUCTION 1
Trade the Professional Way 2
Ride the Statistical Edge . . . Like Betting Seven in Craps 3
Master the Inner Game 4
CHAPTER 1 Foundational Analysis 5
Charts 7
Two Types of Analysis 12
What Exactly Is Technical Analysis? 14
The Four-Stage Theory 19
Stage 1: Accumulation 22
Stage 2: Markup 25
Stage 3: Distribution 29
Stage 4: Decline 29
Support and Resistance 34
Definitions of Support and Resistance 34
Once Broken, Support Tends to Act as Resistance 36
Once Broken, Resistance Tends to Act as Support 37
The More Often Support or Resistance Is Tested, the More Likely
That Level Is to Fail to Hold Back Price Movement 38
The Longer the Trend Has Been Neutral (Consolidating), the More
Significant the Eventual Breakout Becomes 41
Trends 43
Trading Volume 51
Moving Averages 58
CHAPTER 2 Risk Management 69
Discipline—The Key to Trading Success 70
Discipline Perspectives 70
v
vi CONTENTS
Avoid Trading with Scared Money 71
Terra Nova Trade Evaluator 71
Your Goal: To Trade without Emotion 71
Plan Your Trade and Trade Your Plan with
Risk-Reward Ratios 73
Setting Stops—Overview 75
Overall Protective Stop Guidelines 75
Protective Stops and Trading Time Frames 76
Percentage of Price Stops 79
Time Stops 80
Avoid This Mistake 80
RealTick® Can Help 80
Risk Management and Trading with the News 81
Risk Management and Share Size 83
Summary 84
CHAPTER 3 Basic Chart Formations 85
Time Frames 88
Weekly Charts 89
Daily Charts 90
Intraday Charts 90
Sixty-Minute Charts 91
Ten-Minute Charts 91
Interpreting Chart Patterns 92
Reversal Patterns 92
Head and Shoulders Chart Formation 92
Long Base and Saucer Formations 94
Saucer Bottoms and Tops 96
Cup and Handle Formation 97
Bull and Bear Traps 97
Continuation Patterns 100
Rectangle (Box) 100
Flags and Pennants 102
Triangles 105
Summary 111
CHAPTER 4 Going Short 113
Finding Shorting Opportunities 115
Price/Earnings Ratio Imbalance 115
Gap Openings 116
The Loaded Spring 118
Day-Trading “Tape Resistance” 122
The Short Squeeze (Be Cautious) 123
Contents vii
Margin Accounts 125
The Federal Reserve Board’s Regulation T 125
Opening a Margin Account 126
Calculating Initial Requirements 127
Excess Equity 128
Calculating Maintenance Requirements 129
Minimum Maintenance Requirements 129
Change in Market Value 129
Short Sales and Margin Requirements 130
NASD/NYSE Minimum Deposit on Short Sales 131
Margin Maintenance Calls on Short Sales 131
Shorting-against-the-Box 132
Summary 132
CHAPTER 5 Other Trading Vehicles 133
What Is an E-Mini S&P 500 Contract? 134
E-Mini Symbols 135
Initial and Maintenance Margin Requirements 136
Treatment of Settlement 136
The E-Mini Contract versus the Pit-Traded Contract 137
Price and Percentage Limits 137
Single-Source Liquidity 138
E-Mini Standard & Poor’s 500 as a Hedge 139
Tax Advantages with the E-Mini 140
The E-Mini Nasdaq 100 140
Chicago Board of Trade Mini-Dow Futures Use
$5 Multiplier 141
Who Regulates Futures Trading? 142
Program Trading and Fair Value 142
Predicting the Opening 144
How to Calculate Fair Value 144
What about Exchange-Traded Funds? 145
The QQQQs 146
E-Mini Is Hard to Beat 146
Put and Call Options 146
A Brief History 147
Puts and Calls and Standardized Options 148
Shares per Option 148
Pricing 149
Symbology 150
Settlement 151
In-the-Money or Out-of-the-Money 151
viii CONTENTS
Rights versus Obligations 151
Opening and Closing Transactions 152
Open Interest 152
Opening Rotation 153
Option Positions 154
Long Stock 154
Short Stock 155
Long Call 155
Short Call 155
Long Put 155
Short Put 156
Conversions, Reversals, and Synthetics 156
The Greeks and Delta Value 161
Position Delta 161
Gamma 162
Position Gamma 164
Long/Positive Gamma 164
Short/Negative Gamma 164
Omega 164
Vega 164
Theta 165
Summary 165
CHAPTER 6 Trading Strategies 167
The Profiler’s-Systems Trading 170
Pricing Puts/Calls—A Strategy You Can Use 177
CHAPTER 7 Indicators and Oscillator 185
Stochastics 186
Stochastics—Interpretation 186
Relative Strength Index 190
ARMS Index 192
Using the TRIN 195
Fibonacci Retracements 196
CHAPTER 8 Traditional Pivot Analysis 201
The Pivot Formula 202
The Pivot in Action 203
Calculating Pivots 204
Choosing the Right Data for Calculations 205
Contents ix
The Area between R1 and S1 205
Illustrating Pivot Lines on RealTick 207
Archiving Pivot Levels 208
Pivotal Psychology 209
Paper Trading 209
Strategy and Money Management 210
Lining Up Levels on Multiple Time Frames 211
Trading a Confluence Zone 213
Swing Trading with Confluence Areas 215
Summary 218
CHAPTER 9 Planning and Staying on Track 219
What Is Your Time Commitment? 219
How Will You Fund Your Trading Account? 220
What Style of Trading Will You Pursue? 220
What Are Your Profit Objectives? 222
How Will You Manage Your Profits? 222
Do You Evaluate All Your Trades? 222
Are You Keeping a Journal? 222
Summary 225
CHAPTER 10 Your Path to Success 227
Where to Next? 229
Summary 231
Appendix: MarketWise Tools—Routes to Success 233
MarketWise Web Site Resources 235
Tuning to the Market Intraday 236
Glossary 239
Bibliography and Exchange Contact Information 255
Exchange Contact Information 257
About the DVD 259
Index 261