MASTERING THE TRADE: PROVEN TECHNIQUES FOR PROFITING FROM INTRADAY AND SWING TRADING SETUPS
The book, “Mastering the Trade: Proven Techniques for Profiting from Intraday and Swing Trading Setups” was written by John Carter, and first published in January, 2006. McGraw Hill commissioned him to write the book, and it son climbed rapidly on Amazon’s charts. The book was released in English, and consists of three parts, twenty two chapters. The book contains the five primary techniques of professional traders.
John Carter’s father was a Morgan Stanley stock broker and John started his first trade when he was at High school, and doubled his money. He has progressed to becoming a fulltime trader. He studied at the University of Cambridge, England, UK, and graduated with a degree in History and Economics from the university of Austin, Texas. His passion was online trading, which he started part time, and later fulltime. He left corporate America and began trading fulltime in 1998 after he was satisfied with his trading system. He is a well known speaker in his field, for Traders Expo, and other industry events. As a writer he contributes to various publications, including SFO magazine. He launched TradetheTradeMarkets.com to post his trading ideas and has 10,000 followers. Currently, he is a Commodity Trading Advisor (CTA) with Razor Trading, and manages a forex and futures find. He relaxes by swimming, running and travel accompanied by his wife Maria and their son. He is widely experienced and respected in the industry.
Brief overview of the Book
This book is clearly non-fiction, and best fits the genre of a self help treatise. It offers the reader an opportunity to penetrate the world of trading, and to guide them through the masses of information, to a specific action plan that will work. The purpose of the book is not to make you a trader, but to make sure you make money trading. Carter wrote this book about the fundamentals of successful professional traders. It deals with trader’s mindset, day trading futures, and the necessity of a professional plan. He is a very successful and seasoned trader and he has much to share. Everyone in the trade is looking for what he calls the Holy Grail, a setup that will make money for the trader when he applies it. He supplies several setups for the reader to study and to use. He stresses that set ups, not personal judgment calls are the key to successful trading.
The plot of the book is quite simple, and a glance at the contents page will reveal this. He has three main parts to his book. To trade you need to take into account your mindset, and he describes three main types, or personalities, and indicates how this can be done. Secondly, he emphasizes that traders must trader using set ups and stay with the plan. He provides 12 of his set ups that he recommends may be used with success. Thirdly, Carter points to a discipline, professional business structure and plan. There after much of the book tries to be informative, and to provide practical advice to those who want to get out there and make money. Its appeal is not only to the professional traders, though he makes it clear that he writes assuming the reader has basic trading knowledge.
The book investigates the reasons behind successful trading, and failure, and presents the reader with interesting insight into the mindset, and life of a trader. He endeavors to cut through the many red herrings that deprive traders from earning money. He explains in some detail his points regarding why traders crash and burn, what successful traders do. He delves very much into psychological and personality based mindsets. These are linked to practical solutions for the issues arising out of the mindset. His main presentation is on trading itself, its techniques and especially set ups. The book stresses the necessity of a professional plan. This must guide you when in a trade, and is essential to success. He deals with actual trading in minute detail, trying to illustrate his points by showing how things must be done.
His style is easy to read, more “folksy” than academic. This does not mean his content is not based on sound principles; it’s a comment on his style. He uses catchy chapter headings such as “Psychology 101: What they did not teach you about trading in school!” The book makes strong use of his personal experiences, and screen shots of different trades that he was involved in, or others were. The portions dealing with such events are designed to get the reader’s attention, and they do. The technical data that he gives forms a major part of the book, and can be hard to read. The book is best understood by first grasping its structure, and the ideas contained in the chapters. The book has 21 chapters and is divided into three parts.
Part 1: Traders Boot Camp
This refers to the army entrance training for new recruits. In this part of the book he deals with the foundations of trading. This section contains five chapters. In chapter one he starts to lay a ground work for the reader. This is not what one would expect as it does not contain financial information, but mainly psychological observations, comments and conclusions, and immediately generates interest. He brings a style of writing that is easy to follow, and pages formatted to be easy to follow, with headings, and sub headings used to achieve this. He leads in with principles of psychology, not economics. This is very effective and creates interest in his subject. His use of easy to understand analogies, examples, and personal experiences is powerful. Some ideas you may not agree with, however, you cannot say you did not understand them.
This is followed by chapter two where he takes his thought and deals with it in detail. He says this chapter lays the groundwork for the strategies discussed later in the book. In it he expounds the psychological points with force and clarity. The weakness here is that he is not a psychologist; nor does he refer to any psychologists to give authority to his argument. He is an economist and historian, giving a deep psychological argument as a basis for his whole book, yet he fails to have the views of any psychologists to endorse his position. This failing recurs throughout the book. The personality trait suitability, the emotional reactions, and control of them, form the major foundation of his principles of success. “Do not trade from emotion, or failure is guaranteed”, is a major essential of being a trader according to his presentation.
Carter takes the trader to the practical arena of computers in chapter three. From the importance of psychological mindset, he now takes up the important role of hardware and software in trading. He makes a convincing case that online traders need the best they can afford if they want to succeed. It is essential they have fast efficient and reliable equipment and software. It is also necessary the traders can use it efficiently. He deals with the subject in detail, including viruses, cache, spyware and other unwanted items. The weakness here is he gave too much information about specific machines and programs. In 2004 they were cutting edge, in 2016 they are outdated. The principle is good, but the specifying while relevant at time of release makes the book out of touch.
Eventually he deals with “understanding the basic mechanics of the markets discussed in this book” in chapter two. He established the need for mindset, for a decent technology system, and now takes up “the basic mechanics of the markets discussed in this book.” He once again refers to the psychological dimension as of prime importance, and then speaks to traders about the market. Even this is couched in the psychological frame. “Markets are reflections of the people who trade them”. He introduces different kinds of markets, describes them and some basic points about them. His writing style succeeds in communicating an understanding of what could be very complicated information. At the end of the chapter the traders know that going into the futures market they buy into the movement of the market. This is a valuable point, later clarified more by his input concerning the put/call ratio. He brings across successfully the parameters of the market.
He comes to what he calls “The stock market is now open-7 keys to gauge the intraday market direction”. He suggests this chapter five is the most important one in the book, and starts by saying traders must read the market, as musicians read music. He tries to bring the trader into a typical day trading starting at the bell ringing. One way he does this is to use examples of actual trades, and movements on the market. This is a double edged sword in my view. The examples are all out of date, even if the information and principles still apply. At the end of this part he has given some good insight on the issues of the mindset, technology, and the makeup of the market. Despite the weaknesses this book is still relevant and the principles are sound, and Part 1 was certainly worth reading, giving clarity and insight into the basic foundations that will make a trader successful. He made a strong case for traders to attend to mindset, and technology, as well as financial systems. This wrapped up Part 1 which certainly gave information, practical instruction and insight regarding on-line trading
Part 2: “Specific Intraday and Swing Trading set ups for Futures, Stocks, and Options, and Forex”.
This section contains twelve chapters and is the largest section. This raises the reader’s expectation to find specific trading details in this part. Part 2 promises specific plans. He begins Part 2 with a chapter entitled “Opening gaps, First and highest probability play of the day” with a technical point, reiterating the need for a set up saying, “Trading without a setup is like hiking in the Amazon without a compass”. Then he moves into the first of several set ups. The first specific set up he describes is related to what he calls a “gap” play.
The promise is made that specific game plan will be presented, and in such detail the reader can duplicate it, and use it to develop his own. Step by step, he leads the trader through opening the buy, setting the parameters, and waiting till exit. He supports this with copies of charts from past trade that he did using the set up. The question arises is it out of date? Will it work today? Is the software available? I tried to Google one site he gives, and found it no longer exists. He also gives rules, then, advice to those who are not fulltime traders, which was a good idea, as many of them need assistance.
In chapter seven he moves to his next set up called by him a “pivot” plan. He explains what this is, what it means, and how to understand the trading on these plays. This plan is well presented, and simple, with a few well defined steps that will provide the reader with a winning set up. His style is good, however once again his data is outdated, and one wonders if it will work now. True to form Chapter 8 opens with the introduction of another set up as promised called a Scalper set up. . This is preceded with essential explanations of how it works, the data gathering required, specific charts that are needed and can be easily created. His presentation is lucid, and easy to follow. Nothing in it seems complicated, and it is in reach of anyone. Nothing is seen, or said that would indicate this is only for specialist people to use. Again it is supported with records of his own trades using this system. These records are detailed and provided proof that on that day he did win, leaving the reader with the question, “Will 2004’s method work in 2016?”
Chapter nine immediately presents the reader with another plan. This one is described with the same clarity. Detailed explanations are given about the meaning and purpose of “tick fades”. It is only good for use on E Mini and Mini Dow. It works on recording the ticks.
He has a gift in presenting logic that is simple, instructions that are clear, and an understated tone that inspires confidence that it is not the trumpet of a braggart, but the sober record of the event. The sources of data that he recommends are available to those who want to use them. One cannot fault the clarity of his instruction, the evidence he provided regarding his use of this play. Chapter 10 follows the flow of the whole of Part 2 as he continues with the revealing of his successful set ups. This set up he describes for swing trades and he calls this the Squeeze. This is used to position the trader for big market moves, which he points out, do not come all the time. The chapter keeps true to his promise and purpose to give detailed instructions that the trader reading the book can understand and duplicate. Having read this chapter confidence emerges that this can be done without too much difficulty. Once again he supports his work with the reports from when he successfully used this set up.
Carter brings another play into focus in chapter eleven, which he calls a brick play. Here you can see the detail he supplies, and clarity. This is so named because the chart he uses reflects the data as squares on top of the regular bar chart. This is played exclusively on the mini Dow. When three bricks have appeared consecutively, it is time to enter the trade at 3 points higher or lower. These plays are used with stop and sell stop orders. He says to go in at market if you are a disciplined person. The brick play is used every day, exclusively on the mini Dow, or on a swing trade. The rules are simple, using a 24 hour intraday chart wait for the third consecutive brick. Count backwards to the third brick. Place a 10 point stop from entry. When it is up 10 points, sell half and move stop to breakeven. If market goes up another 10 points, sell a quarter sell another quarter and move stop to breakeven plus 3. When the bricks signal an opposing sell signal, exit the trade. Reading this kind of presentation builds my confidence, and makes me soberly believe I can do this. John Carter has only started to lay out his set ups and generates an interest in hearing the rest.
In chapter twelve he comes up with a unique name for his play. The ping pong play is so called because the move goes between two points, back and forth. He suggests on the KLAC chart there is a constant channel running that you need to chart and play. He introduces a Japanese Candlestick devised by Jason Nison. On testing the web site recommended here does exist and contains full information of this chart method. It is a flexible play and you choose how to enter this trade. He recommends once the KLAC goes through the 200 SMA go short at the market and place a 50c stop. When it gaps to the 500 SMA go long. The 2 minute charts move quickly so use automatic stops. It catches the ebb and flow of the market.
His play in chapter fourteen is titled Play capping the day with a fine cigar”. He presents the evidence that at 3.30pm Eastern Time (ET) is the wrap up time of the trading day. He does this play in the mini Dow and S&P, only at this time of the day. The details he gives in this play are essential for the success of the play. At 3.52 (ET) if the YM is 10 points and the S&P is 1 point away from where you were trading short at the 3.52 minute chart. The stop is 20 or 2 points respectively. At 4.13 (ET) exactly you exit. He stresses the point that it must be 4.13, not 4.14pm. The minute lost, if you are late, can change the outcome and lock you in.
Now he focuses on some set up’s that work well for swing plays. In chapter fifteen he introduces a Box Play for when market is dead, using forex. His logic is the market will always turn. If it is going up, it will go down.
This play is designed for such reality for use on the forex futures, and cash currency market, especially, the Euros. The forex futures give a wide spread, fills are guaranteed, and no commissions. He suggests if you have not traded in these before, use a demo to get used to the market, before putting money into play. The razorforex.com site he refers the reader to no longer exists. Forex markets are open 24 hours so they never close, and you can play them wherever it suits you. He recommends and shows the charts for swing trade on 60, and 120 minutes. He recommends place a buy stop order 1 tick above the high end, and a sell stop order 1 tick below and trade till automatically thrown out. He says he took 76 hours, to set up, 44 hours before he got a hit. Patience here is the key, not panic. Start with a plan, and stay with it. As swing traders, the goal is to capture the gains in a stock whether on an overnight hold or one that takes several weeks, unlike intraday traders who want to play and be out the same day. As a swing trade, it is essential to stay with the plan and the parameters. Test the high and low levels and buy when there is a break out. If you want to trade pairs, such as GBP/EUR then place a buy stop order and sell stop order. Go all in, then as the market triggers buy stops, scale out in lots of 30 percent until it reaches target. Monitor this on a 120 minute chart.
His next set up is what he calls HOLP/LOHP, or, HOPE and LOVE. In chapter 16 he describes how these move. His premise is that markets are driven by one thing only, and that is price. This play is another recommended for swing trades, not intraday. It works by finding a new 20 day high and identify the high bar trend. Go short when the price action closes below the low of this high bar. This works in all markets, and time frames, and suited to the long period swing trades.
The propulsion play is another favorite of his for swing trading using single stock futures and stock options. Look out for a company with a new product that is able to make a splash. Get positioned over a few weeks, or months. Stocks spend 70 percent of their time at rest, and then sprint. Whilst the market may be choppy, there are individual stocks that are performing. ne must take advantage of the sprint. To do this you must be positioned before the sprint starts. There are 130 well known companies with futures, among them IBM, and you can trade on price of stock. Set up the night before; forget it until the end to see if filled. This is a set up only to be used on swing trade, not intraday. On options it is used to own stock cheaper. To buy 10 190 calls will cost $12,000, however, to buy 1000 shares will cost $120,000. You want to look for high velocity stocks and this swing trade can play out over months.
Carter has now finished giving his detailed set ups. There are twelve in all, the selection is for intraday, or swing trades. He has presented in detail, so the reader can duplicate his trades and set ups. He has made every effort to make it a step by step easy to follow outline. His last chapter in Part 2 is not his own, but one he obtained from a respected colleague. It deals with Market Profiling. He acknowledges he does not come as an expert on this, but is simply sharing it. Market Profile is an accurate electronic, digital measurement of the market, giving real time pricing patterns that are developing at any given time. It also indicates real time volumes, high or low. It is a reality check on what the market really is doing. As such it can be used as a tool to help plan set ups as it is statistically correct regarding price and volume.
This wraps up Part 2 of the book, the main focus of Part 2 is the detailed rendering of his set ups, and illustrations of how he used them to actually make money. Apart from the fact that some websites no longer exist and the plays are all done in2004 which makes the book outdated in my view, the plays are there for anyone to follow, and in sufficient detail that anyone can follow.
Part 3: “Headed back into the Real world of Trading”
We are now are the last part of his book. There are three chapters left. In chapter eighteen Carter provides a master checklist to be used to plan for the next day’s trading. This is a personal outline, and it provides a template for the reader to build his or her own checklist from.
His logic is that to understand what the market is likely to do we need to see what it did in the past. He refers therefore to the charts and data sources. He refers to the monthly charts, 60 minute, EMA, MACD, Scholastic, ATTM and squeeze indicator. From this the best opportunities are when the weekly charts line up with the monthly which line you up for swing plays; always swing play along the line of least resistance. He reminds the reader to use scalp, propulsion, bricks, hope and love set ups. The pivot remains important as indicators, and he introduces a new one, the NYSE member net “buy and sell” numbers, as he reasons they will not take positions unless they are confident of making money.
In chapter nineteen, Carter asks who will succeed best; those who plan, not those who wing it. He then summarizes six points from his personal experiences (357) and gives details of his management plan. It starts with Why I deliberately choose this Occupation, and he gives his reasons. He feels it is important to know why you are doing trading, it must be your decision based on solid reasons. It soon moves into practical trading issues, such as what markets? What strategies? What execution and parameters? It is a lengthy checklist with 15 points that can be found on page 357. He ends with a two page discussion on healthy eating, exercise, and healthy family time. He ends the chapter with a summary of his plan and a sample plan that anyone can use.
His chapter 20 gives “tips and tricks, when no matter what you do nothing is working.” Here he encourages you not to give up, not to get emotional and panic, but to apply strategies until the market turns and you start to make money. His wrap up of this chapter refers again to personality types and cautions that not everyone is suitable for trading, and you must decide if you the reader are made of the right stuff. Finally, he ends the book with his last chapter where he sums up his philosophy of the book saying, the sum of his trading experience is, “all about maintaining a specific state of mind while trading”. He proceeds to give forty tips to help traders maintain a correct state of mind.
John Carter clarifies the swing trade advantages and gives definite workable strategies to use in swing trading, as well as intraday trading. It seems John prefers swing trading and gives set ups that can be used safely. This book is written to help traders make profits, whether doing fulltime or part time trading. “Mastering the Trade,” is written as a “how to” manual, and as such succeeds. If one is looking for an overview of swing or intraday trading this is not the book. It is however a practical handbook if one is looking to trade on the market; this book will give you a detailed step by step plan to follow. It is easy to read, interesting and practical. The author’s five psychological truths, entry and stop loss details, seven keys, checklists and risk limitation information are all practical and relevant. The major benefit is John Carters information on limiting risk, which in the end is a main part of being successful in trading.
The weakness in this book is one the author cannot help, and that is the rapid development of technology has made some of his book out of date. His chapter on hardware and software is twelve years out of date, and anyone wanting to set up today will need to adjust for that. Today the technology available is awesome, and his principle that ram is important and speed is vital should be applied when dealing with this section of the book. This is more important than buying the exact specifications mentioned in the book. Likewise, his trading examples are mostly from 2004 and 2005, which makes me wonder if those details are still reliable today.
Apart from that, “Mastering the Trade: Proven Techniques for Profiting from Intraday and Swing Trading Setups”, is worth reading, and probably worth following if you are new to the trade, and want to build a trading career of your own. Certainly, the balanced approach and cautionary tone shows Carter is out to protect the traders from reckless trading, and losses.
Carter, J. (2006) Mastering the Trade: Proven Techniques for Profiting from Intraday and Swing Trading Setups