The Art of Trend Trading

Look inward for the missing piece to your trading strategy

The Art of Trend Trading bucks the trend of technicality to show readers how instinct and strategy can unite to bring about consistent investment success. Rather than diving ever-deeper into the overdone world of complicated modeling and forecasting techniques, trader, CEO, and bestselling author Michael Parness explains how making intuition a part of your investment strategy tends to result in more long-term profit. Using animal spirits as a metaphor and tool, Parness helps readers understand how their natural tendencies may run counter to their strategy, and how this dichotomy may be the shackle holding them back from true market success. Readers will learn how this perspective lifted Parness from homelessness to making millions in both Bull and Bear markets, and will start developing their own market instinct as they refine and tune into their own natural intuition.

Everyone's looking for the "ultimate" system, a way to "game the market" and uncover the "secret" to successful investing. Over the years, Parness has observed that the best traders – those who consistently make money – are the ones that use instinct and intuition, as well as strategy. This book shows you how to identify the natural trader within, and use your gut to inform an ever-evolving investment plan.

• Follow the author's journey from homelessness to millionaire
• Identify and understand your own strengths and weaknesses
• Develop your instinct alongside your strategy
• Take a lesson from traders making consistent money

There's no substitute for good strategy, but it's no secret that some strategies seem to be more profitable than others. The Art of Trend Trading helps you find that missing piece and turn it into more consistent investment success.

Foreword ix
Michael Di Gioia

Chapter 1: Wishing You a Slow Rise 1

Setting Goals 2

1 Percent a Day Keeps the Ka-Chingos Comin’! 3

Don’t Be in Such a Rush to Lose Your Money 4

Chapter 2: Bear with Me 5

The Achilles Have It 6

Identifying Your Achilles’ Heel 6

Chapter 3: Breakout City and Riding the Horse to Gains 11

The 10 a.m. Intraday Break 11

The Play 12

The Technical Breakout 16

The 52-Week-High Breakout 16

Buy Low and Sell High? 18

The All-Time-High Blue Skies Breakout 24

Chapter 4: Power Trading 25

Be You…Be Powerful! 26

Intraday Primer 26

Time Frames 29

9:30–10:00 a.m.: Gaps 30

10:00–1:00 p.m.: 10 a.m. Rule in Effect 32

1:00–2:30 p.m.: Lunchtime Lull/Reversal 33

2:30–3:20 p.m.: Post-Lunch Activity 34

3:20–3:40 p.m.: Afternoon Lull 34

3:40–4:00 p.m.: Market on Close/End of Day 35

8:00–9:30 a.m./4:00–8:00 p.m.: After-Hours, News Rules! 35

Time Frame Examples 37

News Trader 38

Swing Trades 40

Gap Me, Baby 41

Laggards 41

Market Close 42

After Hours 42

Chapter 5: $12,500 to $3.8 Million 45

Bull, Bear—I Don’t Care! 45

Chapter 6: Options (Pretty) Basic Primer 49

What Are Options? 50

Underlying Assets 51

Rights and Obligations 52

Weekly Options 55

Option Strategies Introduction 60

Spreads 62

Chapter 7: Trading Options 65

Out-of-the-Money Options 65

More than One Month Out 69

Leveraging and Hedging 71

Index Options 73

LEAPs 77

Straddles 78

Strangles 82

Bull Spread 83

Bear Spread 85

Chapter 8: Trading Gaps Animal Spirit Guide (Stalking, Leopard) 87

What Are Gaps? 87

Planning Your Gap Trade 92

Daily Gap Goals! 92

Objectives 94

News/News/News 95

Come Out, Come Out, Wherever You Are, Mr. Gap! 96

Order Flow 97

Managing Risk 98

Know When to Hold ‘Em or Fold ‘Em 100

Believe! 102

Trading Gap Downs 103

Trading Gap Ups 106

Chapter 9: My Favorite Animal Spirits 109

Gap Fades 110

Earnings Runs 113

Earnings Straddles 121

FOMC Fades 123

10:00 a.m. Rule Plays 126

Chapter 10: Trading Gaps Using Technical Analysis 133

Reversal Bars 134

Doji 134

When to Enter 136

Reversal Bars 141

The OOPS Entry 145

Gap and Goooooooooo!!! 147

Exit Strategies 152

Taking Profits 156

Know When to Fold ‘Em 159

Using Stops 161

Gaining an Edge 165

Chapter 11: News Rules! Trading News 171

Laggard News 171

Guidelines for Trading News 172

News Stories 174

Potential News 183

Managing Risk 185

Chapter 12: Trading Laggards 187

What Is a Laggard? 187

If It Looks Like a Laggard, and It Smells Like One… 188

Watchlists 188

Sectors 188

News and Laggards 192

Chapter 13: Trends Are Your Friends 193

Stick with the Trend! 194

Window Dressing 196

Earnings Runners 199

FOMC Runs 206

The January Effect 210

Chapter 14: Finding Your Own Animal Spirit 215

Next Steps 215

Choices 216

Laws of Attraction 216

Are You a Leopard? 218

Chapter 15: Zen and the Art of Rich 221

Society 221

Control… 222

Money 223

Cockroaches 224

Integrity 225

Zen 226

Chapter 16: What Animal Spirit Are You? 229

About the Author 231

Index 233

MICHAEL PARNESS is Chief Trader and Educator at Affinity Trading and CEO of World Series of Trading, the world’s first Fantasy Sports for Stocks ­educational platform. He has been featured as an expert on CNBC, FOX News, CNN, Reuters, Bloomberg, and many other programs, and his rags-to-riches life story was optioned by actor and director Dustin Hoffman. He has also been honored at the United Nations for his charity work with abused children, and his best­selling book, Rule The Freakin’ Markets!, has provided thousands of individual inves­tors with practical trading tips for reading the markets and trading with confidence—without the help of brokers or analysts. He is the proud father of two beautiful daughters, Emma Grace and Joelle.

Are you still looking for the ultimate trading system? A way to game the market and uncover the secret to profitable investing? You should be looking for your system—the strategy that aligns with your personal style of trading—because the one thing all consistently successful traders have in common is relying on their instinct and intuition when managing investment plans. They look beyond the formula to The Art of Trend Trading.

Celebrity trader, bestselling author, and CEO Michael Parness shares his personal insights into how a full spectrum of trading styles move by animal spirits more than steadfast fundamentals, and then provides the practical ways you can grow your wealth by factoring human behavior into your trading ­strategy. Whether you’re a newbie trader or a Wall Street influencer, this book has what you need to succeed. Michael’s refreshing explanations bring to life the ­moment when gut instinct drives technique and brilliant traders take more profit out of the market than run-of-the-mill technicians. Through the same evocative, mind-opening delivery style that sells out his seminars year after year, Michael takes you through every step of his entire thought process. The book will explore:

• Using technical analysis to trade gaps
• Riding trends while managing risk
• Trading the intraday time frames when power trading
• Profiting in bull and bear markets by trading options
• Making your daily goals in an hour or less

Markets are measured by concrete numbers, which often makes traders ­forget they are applying their algebraic trading systems to a human-driven industry. Just ask Michael—he’ll tell you financial freedom starts with The Art of Trend Trading.