Way of the Trade: Tactical Applications of Underground Trading Methods for Traders and Investors

358 Pages·2013·19.46 MB·English

by  Jea Yu

WAY OF
THE TRADE
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WAY OF
THE TRADE
Tactical Applications of Underground Trading
Methods for Traders and Investors
Jea Yu
BLOOMBERG PRESS
An Imprint of
Cover images: katana © iStockphoto.com/Rick Sargeant; dramatic sunset © iStockphoto.com/
Godmode; charts courtesy of Jea Yu
Cover design: C. Wallace
Copyright © 2013 by Jea Yu. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Charts created using Cobra IQ v. 7.0, © CobraTrading Inc. All rights reserved.
Appendix charts created using TradeStation. ©TradeStation Technologies, Inc. 2001–2013. All rights
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Library of Congress Cataloging-in-Publication Data:
Yu, Jea.
Way of the trade : tactical applications of underground trading methods for traders and investors / Jea Yu.
pages cm.—(Bloomberg financial series)
Includes index.
ISBN 978-1-118-59068-3 (cloth); ISBN 978-1-118-66279-3 (ebk);
ISBN 978-1-118-66273-1 (ebk)
1. Electronic trading of securities. I. Title.
HG4515.95Y938 2013
332.64’202854678–dc23
2013007473
Printed in the United States of America.
10 9 8 7 6 5 4 3 2 1
Discovery consists of seeing what everybody has seen and thinking what nobody
has thought.
—Albert von Szent-Gyorgyi
Contents
Preface xiii
Acknowledgments xxi
CHAPTER 1
The Mutation 1
The Phantom Menace 2
Typical HFT Sheep Skinning Cycle in 2009 to 2012 8
Enter the Thunder and Tumbleweeds Market Trading Landscape 18
Defining Market Landscapes, Climates, and Terrains 20
The Five Laws of the Marketplace 26
The Profit By-Product 29
The Model of Excellence: Shokunin 30
The Excellent State of Excellence 34
Earnings Seasons: The Super Bowl of Momentum 35
Global Influences: Europe, China, and the World 38
CHAPTER 2
The Hybrid Market Predator 43
The Hybrid Market Predator 43
Relevant Traits of the Three Skillsets 44
Kurt Warner: Adversity Conditioning Model 45
Pockets, Pockets, Pockets 48
Properly Aligning Your Personal Perspective 49
Manifesting By-Product into a Product 51
The Eight-Step Process to Turn Idea into Profit 55
vii
viii Contents
CHAPTER 3
The Morning Ritual 57
Hunting for Prey: Headliners and Corganic 58
The Gapper/Dumper Three‐Reaction Sequence 59
Ritual Religion 61
Wasted Effort 61
The Real Work, Don’t Skimp! 61
Law of Reciprocity Revisited 62
Fast and Simply Thorough (FAST) Chart Analysis 63
Step‐by‐Step Ritual Routine by Time 65
Evaluate the Climate 73
CHAPTER 4
The UndergroundTrader Trading System: The Katana 75
Recommended Online Direct Access Broker: Cobratrading.com 76
Configuring the Rifle Charts 77
The Role of the Bumpers: Moving Average Breakouts,
Breakdowns, and Trends 79
The Four Parts of Trends:
Consolidation → Break → Peak → Exhaustion 85
The Role of the Bumpers: Bollinger Bands 87
The Slope Effect 88
The Weekly and Monthly Moving Averages and Bollinger Bands 91
The Role of the Stochastics 91
Spotting and Trading Fades 93
The Two Most Important Price Patterns: Pups and Mini Pups 96
Stinky 2.50 and Five‐Level de Facto Price Bumpers 109
The (Only) Three Candlesticks I Use 111
Massive Volume Spikes 116
Mischievous Mistick Manipulation 119
The Essence of Stops 129
Less Is More Applies More Than Ever 132
Early and Mid‐Stage Perfect Storms 142
Three Levels of Stop Mindset 144
What to Do after a Disaster 145
The Three Steps for Proper Re‐Setting 146
Contents ix
Purposely Add More Stocks to Watch List and Minders 149
Step‐by‐Step Healing and Recovery 150
The Unconditional Three STOP Rule 151
DSS: Defensive Sprawl Scaling 152
CHAPTER 5
The Perfect Storm Pattern Trade 157
What Is a Perfect Storm? 157
Perfect Storm Profile 161
Spotting Perfect Storm Opportunities with the Anchor Time Frame 165
How to Trade the Three Types of Perfect Storms 175
How to Play Trending Perfect Storms 177
Trading the Sympathy/Laggard Perfect Storm 180
The Tightening 181
Tightening Reversals 186
How to Play Tightening Perfect Storms 186
The Consolidation Break 189
How to Play Consolidation Break Perfect Storms 191
Repeating Nature of Perfect Storms 194
Double‐Hedged Sword Sequence Trade 197
How to Execute DHSS Trades 201
CHAPTER 6
Optimized Four-Level Research Process 205
Level 1 Research Process: Spot Technical Analysis and
Headline Search 207
Level 2 Research Process: Digging Deeper into Fundamentals 211
Level 3 Research Process: Mining Perspectives 214
Level 4 Research Process: The Juicer, Full Immersion 216
The Afterglow Effect 221
CHAPTER 7
How to Prey for Playable Stocks to Trade 223
Stocks Are Battlegrounds and Participants Prey 224
Playability: Internal and External Factors 225
The Two Types of Playable Stocks: Headliners and Corganic 229
Where to Find Playable Stocks: Sources for Ideas 236
x Contents
CHAPTER 8
Stalking Prey 243
Aging: Waiting for the Pattern to Form 244
Stalking: Setting an Alerts Minder on Your Trading Platform 244
CHAPTER 9
The Encounter from Start to Finish 247
Anxiety: Bad versus Good 247
React, Don’t Panic 248
Distinguishing Trade Entry Stages: Early, Impact, Late 249
The Complete Trade Sequence 256
Pretrade Process: Information Gathering and Analysis 256
Trade Execution Process: Entering the Position 258
Trade Management Process: Monitoring and Exiting the Position 258
Identifying Maladies in Your Trading 262
Post‐Trade Sequence Analysis 273
Reconstruct the Trade and Conditions Accurately 273
Summary 274
CHAPTER 10
Portfolio Trading: The Skillset of the Evolved Hybrid
Market Predator 277
Market‐Calibrated Portfolio Creation and Management 278
General Capital Allocation 278
Activity Allocation = General Capital Allocation 280
Risk Averse Nature of Intraday Trading 280
Her Majesty, Queen Leverage 281
Application of Well‐Managed Allocation Management 282
truTV: “Not Reality. Actuality” 282
Constructing the Portfolio 282
General Macro Market Analysis and Allocation Assessment 283
Qualifying the Three Types of Trade Considerations 284
Intraday Trade Profiles 285
Position Trade Profiles 290
Active Portfolio Management 298
Options Strategies 299
Contents xi
Delta Neutral Hedging 300
Covered Calls: Creating Your Own Dividend 301
Bullish Call Debit Spreads 301
Bearish Call Debit Spreads 302
Portfolio Trading Schedule of Activity 302
Harnessing Your Hybrid Evolution 303
CHAPTER 11
Conclusion: Cultivating Your Personal Evolution 305
Acknowledging the Spirit 305
Elements That Affect One’s Spirit 306
Broken Spirits’ Blowout 309
Nourish Your Spirit 310
Continuing Your Progress 311
APPENDIX A
My Trading Tools and Anatomy of Pattern Trades 313
Suri Duddella
About the Video 333
About the Author 335
Index 337