Trading on Momentum: Advanced Techniques for High Percentage Day Trading

288 Pages·2001·1.53 MB·English

by  Ken Wolff

TRADING ON
MOMENTUM
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TRADING ON
MOMENTUM
Advanced Techniques
for High-Percentage
Day Trading
KEN WOLFF
WITH CHRIS SCHUMACHER
AND JEFF TAPPAN
McGraw-Hill
New York Chicago San Francisco
Lisbon London Madrid Mexico City
Milan New Delhi San Juan Seoul
Singapore Sydney Toronto
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C O N T E N T S
Acknowledgments ix
Introduction xi
Chapter 1
The Basics 1
The Start of It All 1
The Essentials 6
Chapter 2
Getting Started 9
Education 9
Trading Mentality 21
Chapter 3
Tools of the Trade 31
Traditional and Web-Based Brokerages 31
Electronic Direct Access Trading Firms (EDATs) 33
Order Routing Methods 35
Advanced Tools of an Active Trader 44
Charting Software 49
News Services 50
Chapter 4
The New Market Momentum 53
The New Players 53
Institutional Momentum 55
Technical Analysis Momentum 58
Online Trader Momentum 58
Smart Money, Informed Money, and Dumb Money 63
Theme Momentum 70
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vi Trading on Momentum
Chapter 5
Predictable Momentum 73
Predicting Momentum 73
Chapter 6
Predictable Patterns 91
Niche Patterns 91
Gainer Pattern 93
Dumper Pattern 106
End-of-Day Gap Plays 111
News Patterns 113
Chat Room News Hypes 117
Patterns to Avoid 118
Identifying Short-Term Tops and Bottoms 120
Upside and Downside Potential 121
Core Methods 124
Chapter 7
Indicators 125
Indicator Stocks 125
Picking an Indicator Stock 130
Trends 131
Chapter 8
Market Dynamics 133
Market Dynamics 133
Two Phases 134
The Players 136
The Moving Parts 138
Trading the Market 146
Mid-Range Rule 148
Mid-Morning and Afternoon 150
The End 150
The Specifics 151
Example Scenarios 157
Contents vii
Chapter 9
Tracking 163
Building a Tracking Diary 163
Analyzing the Data 167
Forming Expectations 170
Relating Market Dynamics with Tracking 173
Tracking Summary 175
Wrap-Up 175
Chapter 10
Time of Day 179
Delayed Quotes 181
Numbers 184
After-Hours and Pre-Market Trading 186
Chapter 11
Identifying Trading Opportunities 189
Tape Reading 190
The Market Maker Effect 198
Chapter 12
Rules of a Trader 203
Stop Loss Discipline 204
Trailing Stops 207
Money Management 210
Golden Rules of Trading 211
Chapter 13
Personal Accountability and Trading Attitude 221
Trading Attitude 224
viii Trading on Momentum
Chapter 14
Momentum Investing 231
How and Why I Began This Longer-Term Approach 231
The Principles of Momentum in Investing 233
The Law of Participation 238
The Market’s Influence on Momentum Investments 241
Defining the Market 242
Interpreting the Market 247
Momentum Investment Exits 247
Pre-Market Gaps 249
Closing Combinations 251
Epilogue 255
Glossary 257
Resource List 261
Index 263
A C K N O W L E D G M E N T S
We would like to thank Ela Aktay of McGraw-Hill Professional Publishing
for giving us the opportunity to write this book and Beth Brown from
MacAllister Publishing Services for her efforts during the production
process. Without your untiring efforts, this book would not have been pos-
sible. We also want to thank Victor Jung, a fantastic partner and good
friend for his remarkable efforts in the production of this book and tech-
nically on a day-to-day basis in the chat room pits. And Steve Demarest
from MB Trading for his friendship and constant encouragement.
Finally, a warm and grateful thanks to the thousands of traders, both
past and present that have graced the cyber halls of Mtrader.com and
RealityTrader.com over the years. You have helped us create an explo-
sive online revolution that has literally changed the way traders are edu-
cated and enter the trading arena. With your help, we have literally
changed the face of online trading, helping us shift the power of trading
decisions from brokers to individual traders. Your enthusiasm, thirst for
knowledge, and quest for education were the reasons we wrote this book.
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