Street Smarts

1. Embrace Experience Over Theory in Trading

Despite our constant pursuit of knowledge, the market itself assures there is no shortcut to obtaining our final degree.

Practical Knowledge. While theoretical knowledge is valuable, the market demands practical experience. Books and technical analysis can only take you so far; real-world trading provides invaluable lessons that cannot be learned from textbooks. The "final degree" in trading is earned through navigating the market's ups and downs, adapting to its quirks, and learning from both successes and failures.

Learning from Setbacks. The attitude with which you approach the learning process is crucial. Accepting setbacks as inevitable and learning from them is far more productive than stubbornly repeating the same mistakes. Experience is the ultimate teacher, and the market ensures that lessons are repeated until they are truly learned.

Individual Edge. The private individual has more of an edge than he knows! An individual can better determine support and resistance than a computer can. A few trading tricks and a little common sense will get you more mileage than all the books on technical analysis combined.

2. Consistency is Paramount for Trading Success

Every successful trader we have known has also discovered the necessity for consistency.

Coherent Methodology. Consistency is the bedrock of successful trading. It requires a coherent methodology and a specific trading strategy. Without consistency, trading becomes haphazard and unpredictable, making it difficult to achieve sustainable profits.

Following a Strategy. A consistent approach involves adhering to a defined set of rules and principles. This includes identifying specific setups, managing risk, and executing trades according to a pre-determined plan. While the book presents multiple strategies, each shares the same essential starting point: minimizing risk first.

One Strategy is Enough. Some of the best traders are successful because they trade only one strategy. Specializing in one thing and doing it well is often more effective than trying to master multiple approaches simultaneously. The key is to find a strategy that suits your personality and trading style, and then consistently apply it.

3. Minimize Risk Before Maximizing Gains

The single most important secret is this: learn to listen to the markets and do not impose your own will upon them.

Risk-First Approach. Successful trading prioritizes risk management over the pursuit of profits. Before even considering potential gains, it's essential to define and control risk. This involves setting stop-loss orders, managing position sizes, and understanding the potential downside of each trade.

Profits on Their Own Terms. Profits come on their own terms. By focusing on minimizing exposure, the profits will naturally follow. This approach requires patience, discipline, and a willingness to let the market dictate the outcome.

Minimizing Exposure. The number one guiding belief is that you must, above all, find setups and entries which minimize exposure. This means seeking out trades with clearly defined risk points and the potential for quick profits. The goal is to be in the market for only a limited amount of time, reducing the likelihood of adverse events.

4. Swing Trading Basics: Anticipate, Minimize Risk, and Adapt

Swing trading is anticipating the market's next move, and asking what is the most probable outcome.

Anticipating Market Moves. Swing trading involves anticipating the market's next move and positioning yourself to profit from it. This requires understanding market dynamics, identifying potential support and resistance levels, and recognizing patterns that indicate future price movements.

Minimizing Risk. The main goal of each trade is to minimize risk rather than maximize profit. Positions are managed according to the market's behavior after we've made our trade. We can't really predict the outcome.

Adapting to Market Behavior. Swing trading depends on NOT riding out reactions or giving up profits already won. Trades should be exited either in the direction of price movement or just as the price reverses. Trailing stops will lock in any profits gained.

5. Money Management: The Cornerstone of Trading

Every trading strategy in this manual is absolutely 100 percent useless without proper money management.

Losses to a Minimum. Money management is the most important skill for traders. Keeping losses and drawdowns to an absolute minimum while making the most of opportunities for profit.

Short-Term Trading. Short-term traders rarely make a large sum of money on any one trade. Therefore, unlike the trend follower who tolerates a large drawdown in exchange for the possibility of hitting a home run, the short-term trader must keep his losses to a minimum to ensure his survival.

Money Management Principles. All of the patterns in this book follow the same method of money management. The following principles will ensure your success in any type of short-term trading! Enter the entire position at once, place an initial protective stop, immediately look to scale out of your trade, and if the market starts to move parabolically or has a range expansion move, take profits on the entire position.

6. Mastering Tests: Turtle Soup Strategies

The Turtle Soup' pattern typifies the basic testing concept in swing trading, It is a volatile pattern with the potential for substantial gains.

Identifying False Breakouts. The Turtle Soup strategy is designed to identify false breakouts of 20-day highs or lows. This involves waiting for the market to make a new 20-day high or low, and then reversing course, capitalizing on the trapped traders who bought the breakout.

Rules for Buys. Today must make a new 20-day low-the lower the better, the previous 20-day low must have occurred at least four trading sessions earlier, after the market falls below the prior 20-day low, place an entry buy stop 5-10 ticks above the previous 20-day low, if the buy stop is filled, immediately place an initial good-till -canceled sell stop-loss one tick under today's low, and as the position becomes profitable, use a trailing stop to prevent giving back profits.

Turtle Soup Plus One. The Turtle Soup Plus One setup is almost identical to the Turtle Soup setup, except it occurs one day later. It too, can be traded in all markets and in all time frames. We are looking for the market to make a new intermediate-term high/low and then reverse the following day.

7. Retracement Patterns: The "Anti" and ADX Trades

The Anti pattern is one of the most reliable ways to use an oscillator for spotting and trading a choice swing setup.

The "Anti" Pattern. The "Anti" pattern uses the slope of the slow %D stochastic to define the trend. The best trades occur when the %K corrects back at least two to three bars. These are the types of setups which I like to trade because they tend to be the most explosive.

The Holy Grail. The Holy Grail is a precise method we use to measure when to enter a position after a retracement. Once we are in this trade, we are looking for a continuation of the previous trend. A 14-period ADX must initially be greater than 30 and rising, look for a retracement in price to the 20-period exponential moving average, when the price touches the 20-period exponential moving average, put a buy stop above the high of the previous bar, and once filled, enter a protective sell stop at the newly formed swing low.

ADX Gapper. The ADX Gapper is a simple retracement pattern which lets us enter in the direction of a trending market. It is similar to other types of gap-reversal strategies except that it uses the ADX and +DI/-DI as a filter, thus increasing the overall profitability of trading gaps.

8. Climax Reversals: Identifying Exhaustion Points

The most successful climax trades will occur in a high volatility environment, and AFTER the market has already reversed.

Climax Trades. The most successful climax trades will occur in a high volatility environment, and AFTER the market has already reversed. You must see the "climax stop point" already in place before you enter your position! If your entry is correct, the market should move favorably almost immediately.

Whiplash. This is a simple strategy that takes advantage of gaps by entering on the close (MOC) if specific criteria are met. It is also unique in that the gap does not need to be filled. We are looking for days when a gap in the morning is followed by a reversal in the afternoon.

Three-Day Unfilled Gap Reversals. In this particular case the market must begin to close an unfilled gap within three days. Today the market must gap lower and not fill the gap, over the next three trading sessions, have in place a buy stop one tick above the high of the gap-down day, if filled, place a protective sell stop at the low of the gap-down day, and protect any accrued profits with a trailing stop.

9. Breakout Mode: Range Contraction Strategies

Swing trading is profitable only when there are oscillations and good volatility.

Range Contraction. After the market has had a period of rest or range contraction, a trend day will often follow. A trend day is one in which the market opens at one extreme of its range and closes at the other extreme.

ID/NR4. An NR4 is a trading day with the narrowest daily range of the last four days. An inside day has a higher low than the previous day's low and a lower high than the previous day's high. Combining the two conditions sets up an ID/NR4 day.

Historical Volatility. We combine the historical volatility indicator with Toby Crabel's NR4 day or an inside day pattern to identify these critical points. We have found this combination does a good job pinpointing explosive moves.

10. Market Wisdom: Listen, Don't Impose

One of the things you will get out of this book is an increased ability to listen to the market.

Listening to the Market. The ability to "listen to the market" is crucial for successful trading. This involves observing price action, recognizing patterns, and understanding the underlying dynamics that drive market movements. It requires setting aside personal biases and opinions and allowing the market to guide your decisions.

Avoiding Directional Bias. Your biggest enemy in trading is going to be a directional bias, an opinion about market direction ... whether yours, a broker's or a friend's. Shut it out! Learn to concentrate on the "right-hand side" of the chart-in other words, on the pattern at hand.

Reverse Logic. The ability to trade by using reverse logic is not easy. You must discard all your preconceived notions and opinions in order to truly listen to the market and recognize when it is acting like a contrarian.

11. News Reversals: Trading Against the Grain

Logical thinking will lead you right to the poor house.

Contrarian Trading. Trading against the prevailing logic can be a highly profitable strategy. This involves identifying situations where the market is overreacting to news or events and positioning yourself to profit from the subsequent reversal.

Morning News Reversals. Economic news reports in the morning are notorious for causing erratic price behavior upon their release. It is often a time of great uncertainty, and the ensuing volatility creates opportunity.

Big Picture News Reversals. Big picture news reversals are a longer-term strategy (as opposed to scalping off morning economic news reports). They require patience to monitor the initial setup but often lead to a trade that you can hold for many weeks.

12. Preparation and Routine: The Trader's Edge

The importance of doing your homework the night before to prepare for the next day's trading cannot be emphasized enough!

Anticipating Setups. The whole object of swing trading is to anticipate setups so that we are not in a reactive mode the next day. Spontaneous trades are not a good way to make a living.

Daily Routine. Just as the professional athlete must have a game plan, so must the professional trader. Routines and rituals keep us in a steady frame of mind. They help us to focus solely on the task at hand-in this case, the next day's trading opportunities.

Logging Trades. Writing down your trades is the best exercise in the world. I write down the date and time I entered the trade, buy/sell, quantity, contract, and fill price. The log remains open until I close out the trade, at which time I enter the exit date and price.

Last updated: April 22, 2025