Street Smarts - REVIEW
Street Smarts: High Probability Short-Term Trading Strategies
This is a book full of short-term trading setups, and I think it should be in every trader’s library. Linda Raschke usually gets all the credit for this book, but Larry Connors was the co-author, and they take turns explaining some of their best short term trading techniques.
You’ve probably heard of Linda’s Holy Grail setup, and this is the book that made it famous. It is one of the most well-known (but not necessarlly well-traded) short term methods for playing pullbacks in very strong trends. Like all good trading setups, Linda gives you the exact settings for entry and exit, while using the Average Directional Movement indicator (ADX) to define the trend.
Like many of the strategies in the book, the Holy Grail (and most of the others) works on almost any market and in any time frame, whether you are a day trader or only look at charts on a weekly basis. The 25 chapters have over a dozen devoted to single techniques, with several that cover trade management and general market indicators. And as Linda points out in the introduction:
All you need is one pattern to make a living! Learn first to specialize in doing one thing well. We know two traders who do nothing but trade the “anti” pattern from a five-minute S&P chart.
That resonates with me, because one of my main entry techniques almost always triggers at the same time as an Anti pattern. The Anti is one way of defining a trend, and then trading pullbacks against it. The Holy Grail is a slightly longer term method of doing the same thing.
But a good trading toolkit will have more than just pullback patterns. Turtle Soup attempts to catch trend changes just as they happen. Momentum Pinball looks at the changes in direction in the three day market patterns identified in the Taylor Trading Technique. And Historical Volatility Meets Toby Crabel show one way to take advantage of the NR7 narrow range days.
Originally aimed at Swing traders, there are a number of the techniques that I use in my intraday trading from a three minute chart. Besides my version of the Anti, I’m constantly looking for Three Little Indians showing an exhaustion pattern with three symmetrical peaks. Or an 80-20 pattern that occurs at pivots.
And this is where I first ran across the Wolfe Wave pattern which, although I don’t trade it the way Bill Wolfe teaches, sometimes provides the overall structure giving definition to my own trades.
No matter what your trading style this is a book worth reading. You’ll probably find that you keep going back to it until certain sections become second nature, giving you a both a trading edge and a better understanding of the markets.
For More Information:
Extensions Inside Extensions
Fibonacci Extensions are one of my most useful tools. I use them to help me decide where prices may turn and, just as important, where I expect prices to continue. Today we had a series of Fib extensions inside a larger extension pattern.
First, a disclaimer. Although I traded some of the smaller patterns today, I didn’t recognize all of the internal relationships until tonight’s analysis. And although I’ve used standard Elliott Wave labels because they fit so well, I’m not really an Elliott trader. (Note that some letters are lower case and some in capitals.)
We gapped down this morning, opening below yesterday’s low. After a fast drop to the level of the December 1st pivot bottom, we reversed and climbed back to more than fill the gap. My first thought was “Oops!” If you are not familiar with this, it is a Larry Williams pattern that plays reversals of gaps. Point “a” would be a buy signal.
I don’t trade the Oops! pattern by itself, but that signal gave me an upside bias. But only until 8:00, when we reversed from point “c”. The reason was the extension level that we reached. Let’s go over extension measurements again, using this first rally as an example.
An extension measurement takes the distance of a move in one direction, and applies several percentages of that distance to the next move in the same direction. In other words, we would compare the distance from “X” to “a” with the distance from “b” to “c”. In a normal movement the second length will end up at either 62%, 100%, or 162% of the first length. This time it was 62%.
If the Oops! pattern were going to work I would have expected at least a 100% extension, also called a Measured Move. When that didn’t occur I became very cautious. That doesn’t mean I quit trading — just that I no longer had an upward bias.
The movement down from “A” to “B” subdivided into a smaller a-b-c , although the Fib relationships were not as exact as I would like to see. Then we had another movement upwards, shown as the white line from “B” to “C.” This is not a simple up-down-up movement, but what Elliott practitioners call an Impulse move. And it ends at a closely packed Fibonacci Cluster.
If you measure from “B” to “1″ and then add the Fibonacci ratios of that distance to point “2″, it gives you the top of points “3″ and “5.” If you measure from point “2″ to point “3″ and use the ratios from “4″ it also gives you point “5.”
Now let’s take a larger look. Measure from point “X” to “A”, apply the Fib measurements and add them to point “B.” Once again you come up with the level of point 5, the entire pattern making up a large A-B-C. Three Fibonacci Extensions all pointing directly to the same level. And that’s where we turned down.
Whether you use Elliott Wave counts or just Fibonacci measurements like I do, the 791.50 level from this afternoon looks like an important number. Remembering that I don’t trade Elliott by itself (BIG DISCLAIMER), that A-B-C pattern looks just like an Elliott correction in a down move. I wouldn’t be at all surprised to see a drop tomorrow back below point “X.” But all that means to me is that I start tomorrow with a bias of down.
For More Information: Probably the best way to learn Elliot Wave
Robert Prechter’s Elliott Wave Principle