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.
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Technical Analysis of Stock Trends - REVIEW
Edwards and Magee’s Technical Analysis of Stock Trends
This is (and must be) the first book review posted on Trading What I See. It’s the first technical analysis book I ever bought, and from its condition it is obviously my most-used book. Besides continually pulling it out for reference, I read it from cover to cover every few years.I won’t tell you how long I’ve had it, but I started with hand-drawn charts using colored pencils for drawing trendlines. There weren’t any personal computer trading programs back then.This is the book that taught me how to draw and interpret trendlines, and although at the time it was written a daily or weekly chart was about all anyone used, almost everything in the book can apply all the way down to trade-by-trade tick charts.
The book is written in two sections: Part One – Technical Theory, written by Robert Edwards, and Part Two – Trading Tactics, written by John Magee.
In Part One, Edwards gives a detailed look at all the various patterns that appear in markets, from triangles to wedges to head and shoulders reversal patterns and everything in between. You’ll find out the volume requirements of the patterns, and information on support and resistance, trendlines and channels.
In Part Two, Magee shows you how to make use of the theory from Part One in actual trading. If you’ve wondered which bottoms or tops to use when drawing trendlines, he covers this in his “three-days-away” rule. (For Intraday charts just substitute bar for day.) Want to know how far a breakout from a pattern will probably carry? He has a chapter titled “Measuring Implications of Chart Patterns.”
But to me, the most valuable section is “Trendlines in Action.” Every pattern is made up of trendlines, and if you have a set of rules to follow, you don’t even need to know the pattern names. Here are the signals to follow when price breaks up through a rising trendline. Or when price breaks up through a flat or falling trendline.
What is your plan of action when you see converging trendlines forming a triangle? What do you do if you already have a position, and then trendlines start converging? This section covers the parts of trading where too many authors stop writing – Magee gives you the answers.
Then he gives you a tactical review of the different types of chart patterns, what to do if you see one, what to do if the pattern forms in a position you already hold. There is even a short chapter giving a quick summary of what to do in different situations.
There is a reason why this book is called “the bible” of Technical Analysis. Many authors assume you have read this one before you pick up their book. This is not a quick read, but with some study it will give you the best education in charting you can find. Highly recommended.
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Edwards and Magee’s Technical Analysis of Stock Trends