The Swing Traders Bible: Strategies to Profit from Market Volatility (Wiley Trading)

235 Pages·2009·6.7 MB·English

by  Mark Whistler

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The Swing
Trader’s Bible

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The Swing
Trader’s Bible

Strategies to Profit from
Market Volatility

MATTHEW McCALL

MARK WHISTLER

John Wiley & Sons, Inc.

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Founded in 1807, John Wiley & Sons is the oldest independent publish-
ing company in the United States. With offices in North America, Europe,
Australia and Asia, Wiley is globally committed to developing and market-
ing print and electronic products and services for our customers’ profes-
sional and personal knowledge and understanding.
The Wiley Trading series features books by traders who have survived
the market’s ever changing temperament and have prospered—some by
reinventing systems, others by getting back to basics. Whether a novice
trader, professional or somewhere in-between, these books will provide
the advice and strategies needed to prosper today and well into the future.
For a list of available titles, please visit our Web site at www.Wiley
Finance.com.

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Copyright C⃝ 2009 by Matthew McCall and Mark Whistler. 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
otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright
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Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201)
748-6011, fax [phone], 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
contained 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 [phone], outside the
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Library of Congress Cataloging-in-Publication Data:

McCall, Matthew, 1976–
The swing trader’s bible : strategies to profit from market volatility/
Matthew McCall, Mark Whistler.
p. cm. – (Wiley trading series)
Includes bibliographical references and indexes.
ISBN 978-0-470-30826-4 (cloth)
1. Investment analysis.
2. Portfolio management.
3. Stocks.
I. Whistler,
Mark.
II. Title.
HG4529.M383 2009
332.64–dc22
2008028073

Printed in the United States of America.

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Contents

Acknowledgments
ix

Preface
xi

CHAPTER 1
Determining Your Trading Style
1

Why Swing Trading is a Better Alternative to Day Trading
2

How to Successfully Implement Winning Trades
5

CHAPTER 2
The First Rule of Profitability: Stop Loss
9

The End Should Always Come First
9

Occasionally Unforeseen Disaster Strikes
10

Hard Stops as a Profit Tool
12

Using Trailing Stops to Increase Profitability
15

CHAPTER 3
The Second Rule of Profitability:
Commonsense Fundamentals
19

Careful with ETFs, Indexes, and Option Valuation
20

Common Sense is King
20

Ratios Matter
21

Exuberance is Never Fundamental Common Sense
26

CHAPTER 4
The Third Rule of Profitability:
Technical Analysis
29

What is Technical Analysis?
29

The Basic Chart
30

Introduction to Basic Technical Analysis Indicators
32

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CONTENTS

The Importance of Technical Analysis
38

A Beacon in the Night: The Chart is Your First Alert
39

Self-Fulfilling Prophecy
39

CHAPTER 5
Strategy 1: Take the Trends to Pieces
43

Note on Fundamentals and Trend Trading
43

Riding the Envelopes
44

Profits through Pitchforks
52

CHAPTER 6
Strategy 2: The RSI Indicator
55

Choosing an RSI Setting
55

RSI Swing Trading Strategies
56

Implementing the RSI Strategies Step by Step
60

Bringing It All Together
61

CHAPTER 7
Strategy 3: MACD and Stochastic
65

Understanding MACD
65

Swing Trading Strategies Using the MACD
67

Stochastic
74

How to Trade the Stochastic
76

CHAPTER 8
Strategy 4: The Tier II Play
81

Follow the Leader
81

Market Cap in Tiers
82

Example in Action
84

What to Look Out for: Hidden Correlations
84

Where to Find Tier II Plays
85

CHAPTER 9
Strategy 5: ETF Sector Rotation
89

Asset Class Money Rotation
89

Market Cycles
91

Short-Term Sector Rotation
95

Dow Theory
98

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CHAPTER 10 Strategy 6: The Macro-to-Micro Play
101

Step-by-Step Macro-to-Micro Approach for Swing Traders
103

The Daily Macro-to-Micro Trade Strategy
103

CHAPTER 11 Strategy 7: Profit from Exuberance
Premium
107

Technicals Tell a Ton
108

Identifying Exuberance Premium
109

Technical Entry and Risk Management
113

CHAPTER 12 Strategy 8: Japanese Candlestick Charts
115

Single Candlestick Patterns
116

Wrapping Up Candlesticks
125

CHAPTER 13 Strategy 9: Option Primer and LEAP
Options
127

Brief Explanation of Options
127

Puts and Calls
130

LEAP Options
130

CHAPTER 14 Strategy 10: Piggyback Strategy Using
ETFs and Mutual Funds
133

Finding International Swing Trade Ideas
134

Piggybacking Mutual Funds
139

CHAPTER 15 Strategy 11: Scanning for Swing
Trade Ideas
143

Establishing a Daily Scan List
144

CHAPTER 16 Strategy 12: Swing Trading a
Market Sell-Off
153

Shorting Stocks: Profit When the Market is Falling
154

Introducing Short ETFs
157

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CONTENTS

CHAPTER 17
Strategy 13: Swing Trading
the Megatrends
165

Why Trade a Megatrend?
165

How to Trade a Megatrend
167

Current Megatrends
172

The Next Major Megatrend
175

CHAPTER 18
Strategy 14: Return on Assets and
Return on Equity
177

Balance Sheet and Income Statement
177

Return on Assets
179

Return on Equity
179

CHAPTER 19
Strategy 15: Covered Call Options
183

What is a Covered Call?
183

Buying Stocks at a Discount
185

Deep in the Money
185

CHAPTER 20
Strategy 16: Straddles as a Profit Tool
187

Consolidation is Key
187

Straddles
190

CHAPTER 21
Strategy 17: Bull and Bear Spreads
195

Spreads: The Nuts and Bolts
195

Spreads in Action
199

Last Words
203

Notes
205

Bibliography
209

Index
211

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Acknowledgments

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hank you so much to Kevin Commins, Meg Freeborn, Pamela van
Giessen, and John Wiley & Sons, Inc., for making this book possible.
Also, thank you to Sandy Whistler and Ed Juhan for being incredi-
ble parents and to Karen, Mike, and Ryan Eck; Paul, Lauren, and Alexis
Whistler; and Eddie Kwong, Larry Connors, Danilo Torres, Nick Collard,
and the rest of the TradingMarkets.com team. All have helped make this
book possible in some form or another.
Thank you to Leigh Stevens; even the third book is due to your help
from the start.

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Preface

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rading and investing are among the most exciting and rewarding pur-
suits around, there’s no doubt about it. Where else can you make all
of your dreams come true, while having direct control over every step
of your fate? Not too many places. However, trading and investing provide
one of those special situations, where with enough hard work and under-
standing, all of our futures can become as bright as our most vivid dreams
of greatness. It’s not easy, though, investing in financial markets. After all,
anytime there’s money on the line for almost anything in this world, emo-
tions come into play as well.
However, with a solid repertoire of proven tools, there’s no mountain
any of us can’t scale. With this in mind, The Swing Trader’s Bible is many
years of culled experience between us—both of whom work within finan-
cial markets professionally.
Friends for many years, we wanted to create an easy-to-read, simplified
book to help investors and traders of all levels move toward profitability
within the ever-changing sea of investment markets. The lessons within
the very book in your hands are those of trial and error, the result of many
years of hard work.
We are proud to share with you the trading strategies that we believe
will give you the best opportunity to become successful and fulfill your
dreams. A concept that resonates throughout the book is simplicity. We
are not trying to reinvent the wheel or teach nuclear fusion. Our goal is
to share with you strategies that can be learned through some good old-
fashioned hard work.
We hope that you are able to immediately apply the strategies to your
day-to-day investing. What you’re reading isn’t just theory by any means
whatsoever. The strategies outlined in The Swing Trader’s Bible are the
same methods we use every day.
Remember, it is not easy to reach your goals as a trader; however,
greatness is attainable if you have the knowledge of the right strategies.

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The Swing
Trader’s Bible

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