Table of Contents
Introduction ................................................................. 1
About This Book ..............................................................................................2
Conventions Used in This Book .....................................................................3
Foolish Assumptions .......................................................................................3
How This Book Is Organized ..........................................................................4 Part I: Getting into the Swing of Things ..............................................4 Part II: Determining Your Entry and Exit Points:
Technical Analysis .............................................................................4
Part III: Digging Deeper into the Market: Fundamental Analysis .....4
Part IV: Developing and Implementing Your Trading Plan ...............5
Part V: The Part of Tens ........................................................................5 Icons Used in This Book .................................................................................5
Where to Go from Here ...................................................................................6
Part I: Getting into the Swing of Things ......................... 7
Chapter 1: Swing Trading from A to Z. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
What Is Swing Trading? .................................................................................10
The differences between swing trading and
buy-and-hold investing ....................................................................11
The differences between swing trading and day trading ...............12
What Swing Trading Is to You: Determining Your Time Commitment ...13 Swing trading as your primary source of income ............................13
Swing trading to supplement income or improve investment
returns ...............................................................................................14
Swing trading just for fun ....................................................................15
Sneaking a Peek at the Swing Trader’s Strategic Plan ..............................15 The “what”: Determining which securities you’ll trade ..................16
The “where”: Deciding where you’ll trade ........................................18
The “when” and the “how”: Choosing your trading
style and strategy .............................................................................19 Building Your Swing Trading Prowess ........................................................24
Chapter 2: Understanding the Swing Trader’s
Two Main Strategies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Strategy and Style: The Swing Trader’s Bio ...............................................25 Two forms of analysis, head to head.................................................26
Scope approach: Top down or bottom up? ......................................27
Styles of trading: Discretionary versus mechanical ........................28
Wrapping Your Mind around Technical Theory .......................................29 Understanding how and why technical analysis works ..................29
Sizing up the technical advantages and disadvantages ..................31
The two main aspects of technical analysis .....................................33
Appreciating the Value of the Big Picture: Fundamental Theory ............34 Understanding how and why fundamental analysis works ............35
Surveying the fundamental advantages and disadvantages ..........36
Looking at catalysts and the great growth/value divide ................38
Chapter 3: Getting Started with Administrative Tasks . . . . . . . . . . . . .41
Hooking Up with a Broker ............................................................................42 Choosing a broker................................................................................42
Opening an account .............................................................................45
Selecting Service Providers ..........................................................................46 Providers to do business with ...........................................................46
Providers to avoid ...............................................................................50 Starting a Trading Journal ............................................................................52
Creating a Winning Mindset .........................................................................56
Part II: Determining Your Entry and
Exit Points: Technical Analysis .................................... 57
Chapter 4: Charting the Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
Nailing Down the Concepts: The Roles of Price and
Volume in Charting ....................................................................................60 Having Fun with Pictures: The Four Main Chart Types ............................61
Charts in Action: A Pictorial View of the Security Cycle of Life ..............64 The waiting game: Accumulation .......................................................64
The big bang: Expansion .....................................................................66
The aftermath: Distribution ................................................................67
The downfall: Contraction ..................................................................69
Assessing Trading-Crowd Psychology: Popular
Patterns for All Chart Types .....................................................................70 The Darvas box: Accumulation in action ..........................................71
Head and shoulders: The top-off .......................................................73
The cup and handle: Your signal to stick around for coffee ..........74
Triangles: A fiscal tug of war ..............................................................76
Gaps: Your swing trading crystal ball ...............................................77
Letting Special Candlestick Patterns Reveal Trend Changes ..................80
Hammer time! .......................................................................................80
The hanging man (Morbid, I know) ...................................................82
Double vision: Bullish and bearish engulfing patterns ...................82
The triple threat: Morning and evening stars ..................................83
Measuring the Strength of Trends with Trendlines ..................................85 Uptrend lines: Support for the stubborn bulls.................................86
Downtrend lines: Falling resistance ..................................................87
Horizontal lines: Working to both support and resist ....................88
Chapter 5: Asking Technical Indicators for Directions. . . . . . . . . . . . .89
All You Need to Know about Analyzing Indicators Before You Start .....90
You must apply the right type of indicator ......................................90
Not all price swings are meaningful ..................................................90
Prices don’t reflect volume, so you need to account for it ............92
An indicator’s accuracy isn’t a measure of its value .......................92
Two to three indicators are enough ..................................................93
Inputs should always fit your time horizon ......................................94
Divergences are the strongest signals in technical analysis ..........95 Determining Whether a Security Is Trending ............................................95
Recognizing Major Trending Indicators .....................................................97
The compass of indicators: Directional Movement Index (DMI) ...98
A mean, lean revelation machine: Moving averages .....................100
A meeting of the means: MACD ........................................................105
Spotting Major Non-Trending Indicators ..................................................107 Stochastics: A study of change over time .......................................108
Relative Strength Index (RSI): A comparison
of apples and oranges ....................................................................111 Combining Technical Indicators with Chart Patterns ............................114 Using Technical Indicators to Determine Net Long or Net
Short Positioning......................................................................................115
Chapter 6: Analyzing Charts to Trade Trends, Ranges, or Both. . . . .117
Trading Trends versus Trading Ranges: A Quick Rundown ..................118
Trading on Trends .......................................................................................120 Finding a strong trend .......................................................................120
Knowing when to enter a trend ........................................................122
Managing your risk by setting your exit level ................................124
Trading Ranges: Perhaps Stasis Is Bliss? ..................................................125 Finding a security in a strong trading range ..................................125
Entering on a range and setting your exit level .............................127
Comparing Markets to One Another: Intermarket Analysis ...................128
Passing the buck: The U.S. dollar ....................................................128
Tracking commodities.......................................................................130
Watching how bond price and stock price
movements correlate .....................................................................133
Putting Securities in a Market Head-to-Head:
Relative Strength Analysis ......................................................................134 Treating the world as your oyster: The global scope ...................135
Holding industry groups to the market standard ..........................137
Part III: Digging Deeper into the
Market: Fundamental Analysis .................................. 141
Chapter 7: Understanding a Company, Inside and Out . . . . . . . . . . . .143
Getting Your Hands on a Company’s Financial Statements ...................144
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