Trading Basics

The three books in this series were written for people unfamiliar with the inner workings of the stock market, but will still curl the toes of professionals, too. Research is used to prove the ideas discussed, but is presented in an easy to understand and light-hearted manner. You will find the books to be as entertaining as they are informative and packed with moneymaking tips and ideas. Use the ideas presented here to hone your trading style and improve your success. Whether you are a novice who has never purchased a stock but wants to, or a professional money manager who trades daily, these books are a necessary addition to any market enthusiasts bookshelf. Alan Battista, Stockineer.com Book Review

THOMAS N. BULKOWSKI is a successful investor with thirty years of experience in the stock market. He is also the author of the Wiley titles Encyclopedia of Candlestick Charts, Encyclopedia of Chart Patterns, Getting Started in Chart Patterns, Trading Classic Chart Patterns, and Visual Guide to Chart Patterns. Bulkowski is also a contributor to Active Trader, Technical Analysis of Stocks & Commodities, and other publications worldwide. Before earning enough from his investments to retire from his day job at age 36, Bulkowski was a hardware design engineer with Raytheon and a senior software engineer for Tandy Corporation.

Preface ix Acknowledgments xv Chapter 1 how to retire at 36 1 Chapter Checklist 4 Chapter 2 Money Management 7 Trading: How Much Money, Honey? 8 Order Types: Read the Fine Print! 10 Position Sizing: My Story 12 Position Sizing by Market Condition: Bull or Bear? 13 How Many Stocks to Hold? 15 A Better Way? Portfolio Composition 16 Hold Time: How Long is Long Enough? 18 Hold Time: My Trades 19 The Money Management Matrix 19 Should You Scale into Positions? 21 Averaging Down: Throwing Away Money or Smart Choice? 28 Scaling Out of Positions: A Profi table Mistake? 31 DollarCostAveraging: Good or Bad? 34 Using Leverage: An Expensive Lesson! 35 Leverage Guidelines Checklist 36 Chapter Checklist 37 Chapter 3 Do Stops Work? 41 What is Hold Time Loss? 42 Mental Stop: For Professionals Only! 44 Minor High or Low Stop: A Good Choice 45 Squaring Off Round Numbers 46 Chart Pattern Stop: Too Costly? 47 Stopped by a Moving Average 47 The Truth about Trendlines 48 Trendline Stop 49 Fibonacci Retrace Stop: Deal or Dud? 50 Fixed Percentage Trailing Stop 53 Volatility Stop 53 Chandelier Stop Leaves You Hanging 55 Testing Six Stop Types 55 What I Use 59 Chapter Checklist 61 Chapter 4 Support and Resistance 63 Types of Support and Resistance 64 Measured Move Support and Resistance 65 Minor High Resistance 66 Volume at Minor High Resistance 67 Minor Low Support 67 Volume at Minor Low Support 68 Minor High Support 68 Minor Low Resistance 69 Gaps Showing Support and Resistance 70 Myth: Tall Candle Support and Resistance 70 Horizontal Consolidation Regions 71 Another Look at Round Numbers 72 Support in StraightLine Runs 72 Resistance in StraightLine Runs 74 SAR Summary 75 Chapter Checklist 76 Chapter 5 45 Tips Every Trader Should Know 79 Determining Stock or Market Direction 97 Finding the Market Bottom 102 Visual Tips 122 Chapter Checklist 130 Chapter 6 Finding and Fixing What is Wrong 135 What Was the Market Behavior? 136 Was the Industry Trending? 137 How is the Timing? 139 Are All Entry Conditions Met? 142 Was the Position Size Proper? 144 Was an Initial Stop Used? 144 Did You Exit Before the Stop? 145 What Was the Risk/Reward Ratio? 146 Did You Average Up? 147 Did You Average Down? 147 Are You Buying Out of Season? 148 Trading Checklist 149 Chapter Checklist 151 Chapter 7 What We Learned 153 Chapter 1: How to Retire at 36 153 Chapter 2: Money Management 153 Chapter 3: Do Stops Work? 155 Chapter 4: Support and Resistance 156 Chapter 5: 45 Tips Every Trader Should Know 157 Chapter 6: Finding and Fixing| What is Wrong 161 Visual Appendix of Chart Patterns 163 Bibliography 169 Other Sites of Interest 171 About the Author 173 Index 175