Table of Contents

Introduction xiii


Part I Fly-Fishing Lessons


Chapter 1 Three P ’s in a Pod 3


Passion 4


Patience 4


Persistence 4


Chapter 2 The Tackle Box 7


What Goes into the Toolbox 8


Bar Charts and Candlesticks—Same Markets, Different Angles 9


Bullish and Bearish Engulfing Patterns 13


Trendlines 14


Tops 14


Bottoms 19


False Breakouts 20


Gaps 22


Triangles 26


Volume 26


Computerized Indicators 28


Moving Averages 30


Moving Average Convergence-Divergence 32


The Impulse System 39


Force Index 41


Conclusion 41


Chapter 3 Developing Your Technique 45


Analytical Tools and Steps 46


Understanding Entry Orders 49


Conclusion 51


Chapter 4 Expectations 53


Why Managed Funds Can Be “Dilutional” 54


Conclusion 58


Part II Expect the Unexpected


Chapter 5 Seeing is Not Believing 63


Getting Trapped at the Extreme Edge 64


Conclusion 66


Chapter 6 The Art of Deception 69


When the Prey is Exhausted 70


The Deceptions of V-Bottoms 71


The Deceptions of Symmetrical Triangles 73


The Deceptions of Ascending Triangles 74


The Deceptions of Head-and-Shoulders 77


The Deceptions of Breakouts 78


Conclusion 80


Part III Time to Go FISHing


Chapter 7 Fishing Seasons/Market Seasons 83


Market Seasons 83


The Influence of Volatility 85


Monitoring Market Season Changes 86


The Weathervane: A Market Timing Monitor 86


The Weather Station 94


Adding the Detail of Price Patterns to Strengthen the Message 96


Conclusion 99


Chapter 8 Matching the Hatch 101


Bottom Patterns 103


Pull-Back Patterns 115


Top Patterns 123


Pull-Up Patterns 130


The Symmetrical Triangle: An All-Around General-Purpose Pattern 136


Conclusion 150


Chapter 9 Terrestrials and Cut Banks 153


Fundamental Analysis 154


Using Fundamentals to Complement Technical Analysis 159


A Disconnect Between Technicals and Fundamentals 164


Fundamentals on Fire: Momentum Trading 165


Chasing the Big Ones 168


Conclusion 168


Chapter 10 Catch and Release 171


Setting the Hook with the Strike Indicator (Entry) 172


The Strike Indicator Entry Steps 174


Snag Management (Stop-Loss) 177


The Drag System (Trade Management/Profit Exit) 178


Examples of Drag Settings 181


Exit to Enter? 184


Conclusion 187


Chapter 11 A Word About Bait Fishing 189


Daily Bait-‘n’-Wait 191


Weekly Bait-‘n’-Wait 191


Monthly Bait-‘n’-Wait 192


Conclusion 193


Part IV Fishing Journal


Chapter 12 The Trophy Room 197


Neckline Break . . . Up: 9/28/09 198


The January Effect: 1/5/10 199


A Gem in the Junk Pile: 1/1/10 202


Greater Fool Trade: 4/17/10 204


The Perfect Storm: 2/5/10 207


Time of Possession: 8/14/10 210


W-Bottom: 9/11/10 213


Logical Entry and Exit—Long ENTR: 9/11/10 216


Conclusion 219


Chapter 13 The One That Got Away 221


GLF Trade 222


JTX Trade 225


RMBS Trade 227


Conclusion 229


Chapter 14 The Structure of Success 231


The Building Blocks Concept 232


Conclusion 246


Conclusion 249


Appendix A My Trading Journal 251


Value versus Momentum 252


Analysis 252


Group Strength 253


Trading and Position Sizing in Volatile Markets 253


Trade Management 254


Breakouts 256


Taking Profits 256


The Entry/Exit Review 256


Trading Systems 257


Trading Strategies 257


Learning and Progressing 257


Appendix B Table of Indicator Sets 259


References 261


About the Author 263


About the Website 265


Index 267

About the Author

STEPHEN MORRIS is one of the top performing traders of Alexander Elder's SpikeTrade Group, generating a gain of 264# in his SpikeTrade equity during the turbulent and confusing markets of 2008--2010. He has been a guest instructor at an Elder-sponsored trading camp and operates a blog, Fly Fishing the Stock Market, which contains his Weathervane (Market Timing Monitor), weekly and daily market forecasts, along with commentary on long- and short-term buy signals and specific market patterns. Dr. Morris has been trading since 1998.