MASTERING
THE
TRADE
THIRD EDITION
PROVEN TECHNIQUES FOR PROFITING FROM
INTRADAY AND SWING TRADING SETUPS
JOHN F. CARTER
FOREWORD BY PETER BORISH
Mc
Graw
Hill
Education
NEW YORK CHICAGO SAN FRANCISCO
LISBON LONDON MADRID MEXICO CITY MILAN
NEW DELHI SAN JUAN SEOUL SINGAPORE
SYDNEY TORONTO
Contents
Acknowledgments xv
Foreword by Peter Borish xvii
Introduction 1
PART 1
TRADER'S BOOT CAMP:
How Do the Markets Work and What Are the Best Ways to Get
Mentally Prepared for Successful Trading and Investing?
1 What Really Causes the Markets to Move?
Did You KnowThat Most People Who Lose Money in the Markets Do So
Because of These Four Things? 9
How Do Our Odds for Success Increase Once We Understand the Pain and
Suffering of Individual Market Participants? 13
The Gase Study You ff Never Read About at Harvard Business Schoof, or,
Has This Ever Happened to You or Your Spouse? 16
A Note from My Wife: How Have I Dealt with Being Married to
John Carter the Trader? 22
How Do I TopThat? 27
What Is the Only Economic Principle That Matters in the Markets? 30
2 Psychology 101: What Didn t Ihey Teach About Trading and
Investing in School?
Emotions Are Eine at Weddings and Funerals; Why Aren't They
Fine When It Comes to Trading and Investing? 32
Why Is a Guy with a System Always Welcome in a Casino? 34
What Is the Right Mental Outlook for the Markets, and Why Shouldn't
I Turn On My Computer Without It? 34
Minnesota Stupid 36
Why Do Most Traders Have to Blow Out an Account Before It All Sinks In?
The Trader Mind-Set: What Is the Best Way for Gelting, and Keeping,
Your Head in the Game? 43
What Isthe Easiest Way to Establish a Consistently Winning Outlook? 45
What Does Personal Integrity Have to Do with Successful Trading? 46
Where Are You Now in Your Trading Journey? 47
Phase I Trading: Destined to Lose—What Are the Traits That Make People a
Success in Life but Routinely Get Them Killed in the Markets? 48
Phase II Trading: Fear-Based Trading or "Why Does Everything I Touch Turn
to Crap?" 51
Phase III Trading: Why Is the Search for the Holy Grail Guaranteed to Limit Your
Success as a Trader and an Investor? 52
What Are the Signs That a Trader Is Stuck in Phase I, II, or III? 53
Paper Trading—Why Is It More Worthless Than an Iraqi Dinar? 56
But What About Phase IV—How Does a Person Learn How Not
to Lose Money? 58
Why Does the Plateau Money Management Method Work? 59
When Trading and Investing, What Are the Best Ideas to
KeepinMind? 61
Other Books l've Found Useful for Getting My Trading Mind-Set Right 66
3 Is There Rhyme or Reason to How the Markets Move? 68
The Markets Are Moving—Are You Fighting the Tide or
Flowing with It? 68
How Do the Markets Naturally Move? 70
Thrusts and Reactions Morph Into Patterns 78
How to Establish Priorities: If You Are Getting Interrupted Düring the
First Two Hours of Trading, Why Is It Your Fault? 79
Why Is Watching Harry Potter on DVD After 12:00 EST Better
Than Watching CNBC? 80
4 Now That I Understand the Markets—What Do I Trade? 83
Teil Me Straight—What Markets Will Give Me the Best
Chance of Success? 83
What Would You Pay for a First-Class Plane
Ticket to Singapore? 85
Why Wouldn't I Buy These Particular Options with My Mother-in-Law's
Trading Account? 88
Directional Plays: Why Is Delta 0.70 or Better Superior? 88
The Importance of Implied Volatility Crush, or "Look, Ma,
They're Panicking!" 93
How Do You Know When to Hold Em and When to Spread 'Em? 95
5 The Stock Market Is Now Open—What Tools Best Predict
the Market's Next Move? 99
Musicians Know How to Read Music; Can Tradens Learn How to
Read the Markets? 99
Great, Now How Do I Learn to Read the Internais? 107
viii CONTENTS
What Is the Fastest Heads-Up That Stocks Are About to Make a Move? 115
What Is the Best Tool for Reading Buying Versus Selling Pressure? 117
Is There a Similar Tool Just for Nasdaq Stocks? 121
Put/Call Ratio—Is This the Key to the Kingdom? 122
What Is the Most Effective Way to See What's Really Going on in the Stock
Market Düring the Day? 127
How Do You Know When It's Going to Be a Choppy Day? 129
Putting It AllTogether—How Can You Size Up the Trading Dayfrom the Opening
Bell? 131
What Are the Other Main Things to Keep Track Of? 133
And, Oh Yes, Did You Know That If You Ignore This One Thing,
You Don't Stand a Chance? 135
Summing Up 139
6 ABeginner's JourneybyDanielleShayGum 140
And So, It Began 140
ANewIdea 142
Fast-Forward Five Years 143
My Trading Persona 143
The Beginning of a New Life 144
What Goes Up, Must Come Down—or Must It? 146
If Only It Was Sunshine and Roses from There 147
Big Changes 148
Lessens from the Masters 149
Key Advice on the Rath to Consistency 152
In Conclusion 152
PART 2
WHAT ARE THE BEST INTRADAY
AND SWING-TRADING SETUPS FOR
FUTURES, STOCKS, OPTIONS, FOREX,
AND CRYPTOCURRENCIES?
7 The Opening Gap: Why Is This the First and Highest-Probability
Play of the Day? 157
A Note on The3rt Edition 157
How Is Trading Without a Specific Setup in Mind Like Hiking in the Amazon
Without a Compass? 158
WhyAren't All Gaps Created Equal? 160
What Are the Trading Rules for Gaps? 164
Who Is Getting Hurt on This Trade? 165
What Are Some Specific Examplesof Trading the Gap? 166
What's the Secret to Unfilled Gaps? 170
What Are the Best Strategies for People Who Can't Trade Füll Time? 172
How DoesaTrader Position Size for This Setup? 172
Summing Up the Gaps 173
CONTENTS ix
8 Pivot Points: Why Are These Good Pausing Points for
Trending Days and Great Fading Points for Choppy Days? 174
What Isthe Best Way to Beat Indicator-Based Tradens? 174
WhyAren't All Pivots Created Equal? 175
How Exactly Should I Set Up the Pivots on My Charts? 177
The Psychotogy Behind the Pivots—Who Is Getting Burned? 180
What Are the Trading Rules for Pivot Buys on Trending Days? 182
What Are the Trading Rules for Pivot Buys on Choppy Days? 184
What Are Sonne Specific Examples of Trading the Pivots? 184
Trailing Stops in This Fashion Is the Key 193
Tipsand Tricks for Using the Pivots 194
What About Fibonacci Numbers? 194
What's the Best Way to Trade Commodity Markets with Pivots? 197
Summing Up the Pivots 198
9 Tick Fades: Are They Really the Best Way to Take Money
Away from Newbies? 199
What Is the Number One Action Alert Avaitable to Tradens Today? 199
What Are the Trading Rules for Seil Fades (Buys Are Reversed)? 200
What Are Specific Examples of Tick Fade Setups? 201
Summing Up the Tick Fades 208
How Do You Know When Fading Ticks Won't Work? 208
How Do We Trade "Going with" the Ticks Instead of
Fading Them? 209
10 Reverting Back to the Mean or "When Is the Best Time
to Take a Profit?" 215
Where Do Markets Stop Their Current Trend and
Run Out of Gas? 215
This Sounds Awesome—Why Isn't Everybody Döing This? 219
11 The Squeeze: What Is the Best Way to Get Positioned for
the Big Market Moves? 225
Is It Better to Trade for Cash Flow or to Create Wealth? 225
How Does a Traden Redefine Volatility and Use It to
His Advantage? 228
What Is the Best Way to Get in Right Before a Big Move? 229
What Are the Trading Rules for Buys (Seils Are Reversed)? 229
What Is the Biggest Mistake New Tradens Make? 244
Is It Possible to Get Positioned Before a Market Crash? 245
What Is the Best Trading Strategy forThose of Us Who Have a Job
and Can't Trade Füll Time? 248
Updated Examples for the 2008 Financial Crisis and Beyond 249
What Is the Best Way to Filter Out Squeezes That Might
Not Work Out? 254
X CONTENTS
12 Catching the Wave: What Is the Easiest Way to Stay on the
Right Side of the Trend on Any Market, on Any Time Frame? 257
Why Is It CriticaL to Understand the Concept of
Anchor Charts? 257
What Exactly Are the Waves, and How do They Work? 259
How Can I Use the Waves to Sneak into a Squeeze Before
It Fires Off? 262
13 What Is the Best Tool for Staying in a Trade and Not Jumping
Out Too Early? 265
Entries Are a Dirne a Dozen; It's the Exits That Make You Money 265
How Do I Protect Myself When They Are Trying to Shake Me Out of
My Position? 266
14 Scalper Alerts: Is This the Best Tool for Quick Price Trend
Change Confirmation? 269
How Do You Identify and Profit from Changes in Trend Without Catching a
Fading Knife or Stepping in Front of a Freight Train? 269
Why Are Tick Charts Best for Scalping? 270
What Are the Trading Rules for Buys (Seils Are Reversed)? 271
Specific Examples of Scalper Alert Buy and Seil Setups 271
Summing Up the Scalper Alerts 281
Increase the Probabilities of Success Through Multisetup
Combinations 282
15 Brick Plays: How Can I Teil When a Market Is Going to
Reverse Its Trend in the Middle of the Day? 283
Using Bricks to Capture Intraday Reversais in the
Mini-Sized Dow 283
Trading Rules for Buys (Seils Are Reversed) 286
Summing Up the Bricks 289
16 The 3:52 Play: Capping Off the Day with a Eine Cigar 290
This Is Where the Other People Start to Panic 290
Trading Rules for Buys (Seils Are Reversed) 291
Summing Up the 3:52 Play 298
17 HOLP and LOHP—Catching Trend Reversais Without
Getting Smashed 299
Buying a Market Just Because It's Cheap or Shorting a
Market Just Because It's Expensive Is Dangerous—Unless
It's Done Like This 299
Trading Rules for Seils (Buys Are Reversed) 300
Summing Up the HOLP and LOHP Plays 309
CONTENTS
Propulsion Plays—Swing Plays Using Stocks, Single-Stock
Futures, and Stock Options
Setting Up for the Bigger Moves in Individuat Stocks 310
The Traden s Guide to Single-Stock Futures 311
The Only Way to Play Individual Stock Options 314
Trading Rules for Buy Fades (Seils Are Reversed) 318
Updates to the Propulsion Plays 328
Summing Up the Propulsion Plays 330
HEADING BACK INTO THE
REAL WORLD OF TRADING
My Trading Journey and Strategy by Henry Gambell
So You Want to Be a Traden? 335
No Stops 336
Seeking Success 338
Mindfulness and Flexibility 339
Trading as Gambling 340
Technical Analysis 340
Time Frames 341
Weekly Charts 343
Daily Charts 344
Why Use Simple Moving Averages? 345
Chart Coloring 345
The 8 EMA and 21 EMA 346
More Swing Setups 347
Symmetry 348
Ctosing Thoughts 350
What Setups Work Best For Me? by Danielle Shay Gum
The Five-Star Setup 352
Rating Your Setups 352
Where Does the Criteria Come From? 353
My Favorite Setups 353
My Favorite Squeezes 354
The Research Formula: How I Find Them 354
Filtering My Selections 355
Summary 366
InConclusion 367
How I Look at the Markets, Think About Them, and How
I Handled My Emotions While in an Options Position
Where I Made $1.4 Million on a Single Trade
In the Beginning 368
Flow Much Risk Is Needed to Become a Successful Traden? 370
What Did Your Learning Curve Look Like? 372
How Do You Trade Today? 372
What's Your Thought Process for Deciding When to Get Out of a Trade? 375
What Advice Do You Have for Novice Option Traders? 377
What Is Your Favorite Setup? 378
Can You Ptease Share the Story of the $1.4 Million TSLA
Options Trade? 381
What Changes Did You Make as a Result of This Trade? 383
22 How Important Is the Right Technology When It
Comes to Trading? by Darreil Gum 385
Introduction 385
Desktop versus Mobile versus Laptop 385
Computer Security 388
Trading Platforms 391
23 Tips and Tricks for When It s Not Working for You, No Matter
What You Do 392
Will Gry for Food—Using Your Emotions to Make Money 392
The Four Seasons Hotel Trade 393
Thank You, Sir, May I Have Another? 393
When I Tick, You Tick, We Tick 393
Dive, Captain, Dive 394
High Five, Baby 394
Discover Your Personality Type and Find Out If It's Holding You Back 394
Personality Types and Trading—What You Don't Know About Yourself
Can Hurt Your Trading 398
Trading Really Isn't That Easy—Alternatives to Considerfor
Jump-Starting Progress 400
24 Mastering the Trade 403
Amateurs Hope; Professionals Steal 403
40 Trading Tips for Maintaining a Professional State of Mind 404
Surviving the Traden s Journey 408
Before the Trade 409
Conclusion and Final Thoughts 410
Index 413
CONTENTS xiii
