A Complete Guide to Technical Trading Tactics

A thorough trading guide from a professional trader
The Complete Guide to Technical Trading Tactics can help the new individual investor understand the mechanics of the markets. Filled with in-depth insights and practical advice, this book details what it takes to trade and shows readers how they can broaden their horizons by investing in the futures and options markets. The Complete Guide to Technical Trading Tactics outlines a variety of proven methodologies-pivot points, candlesticks, and other top indicators-so readers may use those that work best for them as well as make their own trading decisions without a second thought. Author John Person also shares his insights on a variety of trading technologies that will allow readers to gain a competitive edge in the market.
John L. Person (Palm Beach, FL) publishes The Bottom-Line Financial and Futures Newsletter, a weekly commodity publication that incorporates fundamental new developments as well as technical analysis using his trading system.

Preface ix

Acknowledgments xv

CHAPTER 1 Introduction to Futures and Options:Understanding the Mechanics 1

How the markets work, the elevator analogy, product for the times, important terminology such as margin, contract specifications, and leverage

CHAPTER 2 Fundamentals: The Market Driver 19

Supply and demand issues, economic growth and productivity effects, major economic reports and their in role in market prices

CHAPTER 3 Technical Analysis: The Art of Charts 33

Western-style bar charts and key reversals, point-and-figure charts that focus only on price, market profiling, price and time analysis

CHAPTER 4 Candle Charts: Lighting the Path 43

Enlightening charting technique and its colorfully named patterns—hammers, stars, spinning tops, dojis, hanging man, and others—powerful reversal patterns, reliable continuation patterns, key examples in the dollar and bonds

CHAPTER 5 Chart Analysis: Volume, Open Interest, Price Patterns 67

Volume and open interest rules for traders, M tops and W bottoms, trend lines, measuring patterns, the head-and-shoulders, triangles, pennants and flags, diamonds, wedges, funnels, gaps, islands, rounded bottoms, oops signals, opening range breakouts

CHAPTER 6 Pivot Point Analysis: A Powerful Weapon 93

The pivot point formula for target trading, calculating support and resistance levels, importance of multiple verification from several sources, the P3T trading technique, weekly and monthly charts and numbers, risk management techniques

CHAPTER 7 Day-Trading, Swing Trading: Acting on Analysis 113

Trading to bounce off target numbers, calling tops and bottoms, weekly chart magnets, harami cross and other candle clues to market reversals, pivot points save the day, lining up the stars, the verify-verify-verify approach

CHAPTER 8 Technical Indicators: Confirming Evidence 135

Moving averages and trends, simple rules with averages, tweaking and visualizing MACD, stochastics, false signals, Gann’s key numbers, Fibonacci ratios and projections, time counts for cycles, Elliott wave and its clues

CHAPTER 9 Market Sentiment: What Traders Are Thinking 161

Getting a market consensus from contrary opinion, Commitments of Traders reports, margin rate changes, Market Vane Bullish Consensus report, put-to-call ratios, volatility index (VIX), when the boat is tipping over, media effect

CHAPTER 10 Order Placement: Executing the Plan 171

Importance of getting an order right, online platform concerns, impact of market conditions on orders, 14 top order entry selections you need to know, orders in after-hours trading, spreading concepts

CHAPTER 11 The Mental Game: Inside the Trader 189

Conquering fear, learning discipline, improving confidence, suggestions for success, I’ll-think-about-it syndrome, the paper trader, fear and greed factors, becoming a specialist, setting up an investment diary, setting a positive mind frame, dealing with adrenaline, establishing goals, positive affirmations, stress relief techniques, rewarding success to build success

CHAPTER 12 The Tactical Trader: Tips and Techniques That Work 203

Pyramiding approaches, scale trading, stop reversals, breakouts, momentum trading, the Friday 10:30 a.m. rule, stop placement near a magnet, trading multiple contracts

CHAPTER 13 Options: A Primer 217

What options are and how to use them with futures, simple puts and calls, options premiums, the Greeks, comparison shopping, strangles and straddles, eight top option spreads, delta neutral techniques

CHAPTER 14 Closing Bell: My Top 10 List 235

What the experts suggest, top 10 trading thoughts, measuring success

Glossary 241

Bibliography 253

Index 255

JOHN L. PERSON is a registered Commodity Trading Advisor who publishes The Bottom Line Financial and Futures Newsletter, a weekly publication.John hosts his own financial radio show where he interviews some of the country’s top analysts and traders. These interviews are archived on his Web site www.nationalfutures.com. He is widely quoted by CBS Market Watch,Reuters, Dow Jones Newswires, Bloomberg, the BBC, Futures magazine,and appears as a guest onCNBC. He teaches these techniques atsome of the country’s leading investment expos andconducts seminars from coast to coast. He was invited by the Chicago Board of Trade to contribute his daily market commentaries, which can be found at www.cbot.com/dow. Are you looking for time-tested trading techniques that professional stock index and futures traders use?

Futures and options markets can be profitable arenas for both novice and experienced traders. But to come out on top, you must have a solid understanding of the markets, the technical tools used to trade them, and yourself.

After twenty-five years as abroker, trader, and educator in the futures and options field, John Person has associated with trading legends and manysuccessful traders and witnessed firsthand their strategies for success. Out of these real-time experiences, he shares the valuable insights you will find in A Complete Guide to Technical Trading Tactics. Novice and experienced alike will gain a better understanding of the mechanics of the markets and methodologies that work.

Person demonstrates multiple trading methodologies using pivot point analysis and shows you how you can implement these key calculations with other methods and indicators. To understand this approach, you don’t have to abandon your knowledge of traditional technical analysis techniques. All you have to do is be open to integrating the theories to help you confirm, validate, and identify entry and exit points when trading.

By learning how to better integrate elements of market analysis such as time and price, you’ll be ready to trade with confidence and achieve success. The proven methodologies that are discussed from the technical side include:

• Pivot points–a leading price indicator that is based on price points using different time frames
• Cycle analysis–which deals with predicting market turning points based on time
• Candle chart patterns–which are based on price relationships between the open, high, low, and close including past chart points such as old highs or lows
• Fibonacci ratio corrections and extension studies–which are based on past price points
• Mental thought processes–the last and maybe the most important aspect of trading, which will help you evaluate your psychological makeup and overcomerough spots to stay focused when trading

If you are to trade successfully, you need to understand that it requires hard work, discipline, and, above all, that you remain focused with the use of methodologies that pinpoint opportunities and help you take control of your emotions. A Complete Guide to Technical Trading Tactics will go a long way toward accomplishing these goals.

Praise for A complete guide to Technical Trading Tactics

"John Person does an excellent job of explaining how to apply technical analysis to the futures markets. Since futures trading is short-term in nature, it demands precision timing tools. A lot of those tools can be found in this new book."
––John Murphy
author of Technical Analysis of the Financial Markets and Intermarket Analysis

"Easy to read and easy to follow, A Complete Guide to Technical Trading Tactics is a book traders will love."
––Larry Williams
Legendary trader and author of Day Trade Futures Online and Long-Term Secrets to Short-Term Trading

"A Complete Guide to Technical Trading Tactics is replete with useful trading tips in a logical format, presented by a seasoned trader with a flair for telling it like it is . . . sure to enrich your pocketbook."
––Larry Pesavento
40-year veteran trader and former member of the CME

"There is a Japanese proverb: ‘He whose ranks are united in purpose will be victorious.’ This book skillfully reveals how to join the most important aspects of technical analysis including my favorite (of course) candlesticks. Covers the spectrum from market mechanics to chart analysis, pivot points (John’s specialty), order placement, and much more. Use this book! It will help you along the road to victory in your trading battles."
––Steve Nison, CMT
President, Candlecharts.com and author of Japanese Candlestick Charting Techniques and The Candlestick Course

"Brilliantly provides succinct descriptions and applications of technical trading techniques, gives a solid overview of the derivatives market, shows how to identify and work with a broker, and presents issues that a trader must face to be successful. A must-read for traders at all experience levels."
––Daniel M. Gramza
President, Gramza Capital Management, Inc.

"John Person provides readers the most valuable commodity they can buy on any exchange: the benefit of his vast knowledge and experience related to trading. His analysis and discussion of pivot points is an especially valuable contribution to trading literature."
––Edward D. Dobson
President, Traders Press, Inc.