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With more than 50,000 copies sold, Alan
Farley’s The Master Swing Trader has become
the definitive guide for maximizing profit
from short-term price moves. Now in his
highly anticipated companion volume, The
Master Swing Trader Toolkit: The Market
Survival Guide, Farley builds on his proven
strategies and techniques and delivers new
tips for consistently beating the markets—
today and in the future.
The Master Swing Trader Toolkit is a powerful
application-oriented handbook that shows
you how to identify and grow wealth from
the opportunities resulting from the steep
market crash. Additionally, this full-service
volume offers prescriptions for prospering
in the postcrash environment and provides
guidance for finding new, reduced-risk market
prospects during virtually any economic
scenario to come.
The author’s trading style has evolved since
the publication of The Master Swing Trader.
This follow-up companion helps you adapt
and gain an edge as the author has, specifically
in the vein of “defensive trading,” to
achieve profitability in the modern electronic
Because The Master Swing Trader
Toolkit is a survival guide for the real world,
Farley presents an abundance of authentic
case studies to show his defensive trading
strategies in action, and he illustrates a broad
variety of other patterns and observations
acting in specific market scenarios.
The Master Swing Trader Toolkit prepares
you for success in the financial landscape of
today and tomorrow with insightful, up-todate
At its core, The Master Swing Trader Toolkit:
The Market Survival Guide is a book about
tape reading. The ticker tape is immune
from manipulation, deconstruction, regulation,
and fragmentation, which makes it the
most powerful tool for attaining wealth. Get
the most out of what you read by starting
with The Master Swing Trader Toolkit.
PROSPERING IN THE POSTCRASH ENVIRONMENT
The markets have never been a pretty place. Just ask those Dutch traders who bought into the tulip mania back in the seventeenth century. You think the real estate bubble was bad? Imagine paying the modern day equivalent of $10,000 for a single tulip bulb, sight unseen. Where were the attorneys general and the SEC enforcers back then, when they were really needed?
To be frank, I like my markets just the way they are, warts and all. And I'm convinced that world capitalism would get a lot worse if we didn't have a good place to make bad decisions, at least between 9:30 a.m. and 4:00 p.m. New York time. Maybe that's why I cringe whenever government bureaucrats or state prosecutors step onto our sacred ground.
You see, we earn a living when other people put on their dumb hats and buy too high or sell too low. No, folks like us don't build bridges, sell suits, or lead their flocks to salvation. To be realistic, we contribute absolutely nothing to society except pure liquidity and an aggressive attitude. And you know what? I wouldn't have it any other way, because the trading game works directly with the machine language of the world monetary system and is the only profession I know that doesn't depend on a boss, a company, or an economy. At its core, our unique business feeds ruthlessly off the excesses of the marketplace, and it just wouldn't be the same without all the manipulation, misinformation, and monkey business.
Many former investors now hate the financial markets and anyone who prospers through trading or speculation. With biblical fervor, these folks believe that justice must rain down on the greedy bastards who still appreciate the marketplace or prosper from its existence. Amazingly, many of these self- righteous critics still follow the market's every twist and turn through their favorite news channel or Web portal. Talk about hypocrisy!
I have a standard response whenever I get attacked for my continued faith in trading, capitalism, and the modern markets. It goes something like this: Why waste your time if you're getting angry and upset reading the financial news? Take up knitting instead, or, better yet, join a political party. I'm sure you'll be much happier in your misery, and Mr. Market will be a much kinder gentleman without your daily attendance.
To quote a famous fictional trader, greed is good. Greed pays the bills and gets the kids through college. Greed also performs an important community service. It relieves the misinformed of their excess capital and gives it to those more deserving of its ownership. Indeed, pure unadulterated greed greases the engine of worldwide market inefficiency. And, without question, the twenty-first- century trader must be greedy in order to develop the predatory style required to prosper in our modern electronic markets. This fact of life may be distasteful to folks who still believe in the tooth fairy or in Robin Hood, but the rest of us understand there will be a loser for every winner, and everyone who plays the financial markets has to choose whether to take—or get taken.
The next two declarations are true on multiple levels, but they're also totally contradictory. The markets (a) are the same now as they were one hundred years ago, with timeless principles moving the tape, and (b) have changed radically in the last decade and no longer operate according to timeless principles. Therein lies the challenge for traders at all levels as we head into the second decade of the new millennium. In a nutshell, we've read all the technical analysis books, attended all the seminars, and listened to all the market gurus and talking heads. But nothing, absolutely nothing, has prepared us for the surreal science fiction landscape we're now forced to navigate each day.
Of course, it starts with the trading bots. We knew the influence of program trading would grow when we saw its handiwork between 3 and 4 p.m. New York time back in the 1990s. But who could have predicted that coldhearted algorithms would become the overriding force in price development, on a daily basis, just 10 years later. On the surface, computerized trading is a great addition to the marketplace because it adds significant liquidity to the ticker tape. But these algorithms lack the singular force of nature we could always count on throughout our years of flipping stocks, futures, and currencies: they operate without the twin emotions of greed or fear.
That's right, trading bots won't panic when they find themselves on the wrong side of the market and won't get euphoric after good news delivers a windfall profit. In other words, they don't act or react to the financial markets like you or I, our neighbors, or those suits on Wall Street. They're cold, calculating, and totally focused on their one-minded goal to move the markets in their favor. Sadly, today's state-of-the-art algorithms wouldn't work with such diabolical precision if the market's historic center of gravity still existed. For all our complaints in the 1990s about the NYSE specialists and Nasdaq market makers, those savvy middlemen kept the trading bots in a controlled space, from which we flesh-and-blood players could coexist in an uneasy peace.
That delicate balance was lost, perhaps forever, when electronic execution systems killed the middlemen around 2005 and replaced their overriding role in maintaining orderly markets with the ephemeral barrage of bid-ask prices that now flash across our screens at the speed of light. Retail traders like you and me have been forced to operate since that time in a desolate Mad Max landscape that has become the centerpiece of our twenty-first-century auction place.
Wait a second. If things are really that out of control, why don't we all just give up and find another moneymaking hobby, like poker or macramé? Well, as it turns out, you can only screw around so much with the modern market environment before it bites back. Whenever the tape gets a little too crazy, manipulated, or downright synthetic, we can depend on the natural forces of supply and demand to suddenly kick back into gear and take control, just like the old-fashioned NYSE circuit breakers. Therein lies the incredible power of technical analysis. In truth, this venerable practice still works, although it's been battered, beaten, and deconstructed into a zillion microscopic particles. Indeed, the power of price charts to expose zones of conflict and levels of opportunity is undiminished in our new millennium, despite trading bots, inadequate regulation, and a marketplace with no center of gravity.
The balancing act for modern traders like you and me is to coexist peacefully with the market whales that control price movement while applying technical analysis and razor sharp observation to identify inefficiencies that translate into consistent profits. Of course, this is easier said than done because long-term profitability requires a near fanatical commitment to our unique craft. Gone are the salad days when we could just throw money at a rising tape and expect to get paid off on a regular basis. Simply stated, there's no seat at the table for lazy or dumb money in our tough-crowd, postcrash market environment.
If you're still up for the considerable task, despite the sea of obstacles, you'll need to master the three overriding aspects of market knowledge and day-to-day strategy. These essential items represent the core themes of my peculiar market view:
Recognize what the market is saying whether or not it supports your bias or positions.
Find the right time and right price to take on exposure, or step back to the sidelines.
Manage risk w
Excerpted from THE Master Swing Trader Toolkit by ALAN S. FARLEY. Copyright © 2010 by The McGraw-Hill Companies, Inc.. Excerpted by permission of The McGraw-Hill Companies, Inc..
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PART ONE PARSING THE MODERN MARKETS....................
Chapter 1 Prospering in the Postcrash Environment......
Chapter 2 The Crooked Playing Field....................
PART TWO CYCLES, SHOCKS, AND SEASONALITY...............
Chapter 3 Revisiting the Market Clock..................
Chapter 4 Relative Strength....................
PART THREE REDISCOVERING PROFITABILITY.................
Chapter 5 The Nature of Winning....................
Chapter 6 survivalist Trading strategies...............
PART FOUR MANAGING OPPORTUNITY....................
Chapter 7 Market Entry....................
Chapter 8 Positions, Markets, and Trading styles.......
PART FIVE CONTROLLING EXPOSURE....................
Chapter 9 Position Management....................
Chapter 10 Mastering the Intraday Market...............
PART SIX MANAGING RISK AND REWARD....................
Chapter 11 The Nature of Losing....................
Chapter 12 Capital Preservation....................