“The market plays the music. How you dance depends on the music played.” – Brett Steenbarger
They say that the definition of insanity is doing the same things over and over again and expecting different results. If you do the same things over and over again in the stock market, you are guaranteed to get very different results. Do you know why? Because the market is constantly changing. This is the big secret of financial markets. Nothing works all the time.
Different setups work in different markets. Everyone makes money in a bull market. Not everyone keeps it when the market goes into correction or a range-bound, choppy mode. A good trader is able to adapt to changing markets.
Many get into trading with dreams of getting rich quickly and becoming financially independent. The problem is that most expect things to happen immediately. At the beginning of their career, most people are undercapitalized and have no idea what they are doing. When you are undercapitalized, you are likely to do at least one of the following five major mistakes:
• trade too big,
• trade without an edge or in other words – gamble,
• overtrade,
• trade low-priced junk stocks,
• use excessive leverage.
Some say that discipline and risk management are the solutions to all trading challenges, but they are not going to help you if you trade a setup without an edge in the current market.
Discipline + A losing setup = Consistent losses and frustration.
The one big thing that can improve your trading life is learning how to recognize changes in markets and being able to quickly adapt to them. Different setups work in different markets. Knowing what works and what doesn’t work in each environment is 80% of the battle.
There are four major types of markets and each of them requires a different method: Uptrend, Range-bound, Downtrend, and Bottoming Process. On these pages, I share my approach to each of them.
There are six main factors that have the biggest impact on stocks’ price action in a short-term perspective:
• the general market direction,
• price momentum,
• industry momentum,
• float and newness – is it a recent IPO,
• market reaction to a recent earnings surprise,
• and short interest.
In this book and in my personal trading, I focus on setups that have at least two of the above-mentioned catalysts going for them.
This is one of the most practical trading books ever written. It doesn’t waste your time with personal stories of grandeur. It is all about setups. I explain what setups to trade and when, why they work, how to find them, how to trade them, where to exit. It is a complete game plan for any market environment.
And since I believe a good picture is worth a thousand words, there are 140 annotated charts with examples for the ten major setups discussed in the book.
Here’s the table of contents for the book:
INTRODUCTION – The one thing that will make you a better trader.
Chapter 1. BREAKOUT SETUPS – How to profit from range expansion.
Chapter2. PULLBACK SETUPS – How to enter an established trend with low risk and for high reward.
Chapter 3. IPO SETUPS – How to find stocks that can go up 50% in a month.
Chapter 4. INDUSTRY MOMENTUM SETUPS – How to benefit from one of the most powerful market forces.
Chapter 5. EARNINGS GAP SETUPS – How to profit from post-earnings-announcement drift.
Chapter 6. SHORT SQUEEZE SETUPS – How high short interest might lead to explosive short-term moves.
Chapter 7. HUGE VOLUME SETUPS – How to quickly grow a small account.
Chapter 8. BEARISH SETUPS – How to make money during corrections.
Chapter 9. RELATIVE STRENGTH SETUPS – How to gain from the moves of big players.
Chapter 10. MEAN-REVERSION SETUPS – When is the right time to go against a trend.
Summary
